The Federal Trade Commission (FTC) has announced the filing of another civil complaint for violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. On July 2 2013 the Department of Justice filed a complaint on behalf of the FTC in federal district court alleging that Barry Diller had acquired shares of Coca-Cola without proper notification under the act. Parties, including individual investors, officers and directors, must notify the FTC and the Department of Justice and observe a waiting period before acquiring voting securities, assets or controlling interests in partnerships or limited liability companies if Hart-Scott-Rodino threshold tests would be satisfied and no exemption would apply. Diller agreed to pay civil penalties of $480,000 to settle the charges.
The complaint in United States v Diller alleged that Diller acquired 120,000 shares of Coca-Cola on November 1 2010, and as a result held voting securities valued in excess of the then-existing reporting threshold of $63.4 million. Although this acquisition satisfied the applicable Hart-Scott-Rodino threshold tests and no exemption applied, Diller did not file a notification under the act. Between November 1 2010 and April 26 2012, Diller continued to acquire shares of Coca-Cola without filing notifications with the FTC or the Department of Justice. On April 27 2012 Diller acquired additional shares valued at approximately $20.3 million. Diller again failed to make a Hart-Scott-Rodino filing even though, as a result of this acquisition, he held voting securities valued in excess of the next higher notification threshold under the act, which at the time was $136.4 million. Diller did not qualify for the 'solely for the purpose of investment' exemption because he was a director of Coca-Cola. Diller made corrective filings after he received an inquiry from in-house counsel at Coca-Cola regarding the application of the act to the April 27 2012 acquisition.
Those who violate the act are subject to civil penalties of up to $16,000 for each day in violation of the statute. The FTC and the Department of Justice may seek civil penalties for violations of the act's reporting requirements even in the case of an inadvertent missed filing. In Diller's case, a prior violation of the act likely contributed to the FTC's decision to recommend seeking civil penalties. In 1998 Diller had made a corrective Hart-Scott-Rodino filing after his failure to file a notification related to his acquisition of voting securities of CitySearch, Inc. At that time he presumably agreed to institute a compliance programme so as not to miss any future Hart-Scott-Rodino filing obligations. Even though Diller self-reported his 2010-2012 violations, the FTC still recommended a complaint, although it agreed to a lower civil penalty than the statute permits.
The complaint against Diller serves as another reminder of the importance of consulting with Hart-Scott-Rodino counsel before the acquisition of voting securities, assets or controlling interests in partnerships or limited liability companies. This case comes less than two weeks after the filing of a complaint against MacAndrews & Forbes Holdings Inc for failure to file notification under the act. Even acquisitions of minority interests, or a series of small acquisitions that do not by themselves surpass the Hart-Scott-Rodino thresholds, may trigger mandatory filings due to the complicated valuation and aggregation rules under the Hart-Scott-Rodino regulations.
In a separate announcement, the FTC finalised amendments to the pre-merger notification rules that formalise longstanding practices related to the withdrawal of Hart-Scott-Rodino filings. The FTC's Pre-merger Notification Office has long permitted the acquiring person to withdraw and re-file its pre-merger notification without incurring additional filing fees (so long as it is re-filed within two business days of the withdrawal). Parties often employ this informal procedure in order to give agency staff additional time to review a transaction in the hopes of avoiding a protracted second request investigation. The new rules finalised on June 28 2013 do not change this procedure, although they provide added certainty in that the informal practice is now part of the FTC's rules.
In addition, the new rules require automatic withdrawal of Hart-Scott-Rodino filings if the Hart-Scott-Rodino waiting period is still pending and "any filing that publicly announces the expiration, termination or withdrawal of a tender offer or the termination of an agreement or letter of intent is made" by either the acquiring or acquired person to the Securities and Exchange Commission (SEC). This change was not without some controversy. In fact, the FTC vote approving the proposed change was three to one. The majority believed that this procedure will prevent the FTC from "expend[ing] scarce resources on hypothetical transactions", but Commissioner Wright, on the other hand, dissented and argued that the rule is an unnecessary regulation addressing an unproven problem. Nevertheless, the rule is now final and a part of the Hart-Scott-Rodino regulations.
For further information on this topic please contact Michele S Harrington at Hogan Lovells US LLP's McLean office by telephone (+1 703 610 6100), fax (+1 703 610 6200) or email ([email protected]). Alternatively, contact Joseph G Krauss or Charles E Dickinson at Hogan Lovells US LLP's Washington DC office by telephone (+1 202 637 5600), fax (+1 202 637 5910) or email ([email protected] or [email protected]).
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