Alert October 08, 2015

Third Penalty in Two Months Against a Minority Investor Again Signals Increased FTC Enforcement of the H-S-R Act


The FTC’s third penalty against a minority investor illustrates the need for all investors to consult with H-S-R Act counsel prior to making any acquisition that may exceed the size-of-transaction threshold.

For the third time in less than two months, the U.S. Federal Trade Commission (FTC) has announced an enforcement action against a minority investor who failed to comply with the Hart-Scott-Rodino (“H-S-R”) Act notification requirements before closing.

In the most recent case, the FTC imposed a civil penalty of $656,000 on billionaire investor Len Blavatnik because he did not consult with H-S-R Act counsel and file a mandatory notification before acquiring shares in the tech startup company TangoMe. The action against Blavatnik drives home the point that all investors should consult with H-S-R Act counsel before making any acquisition that may cross the size-of-transaction threshold.

Under the H-S-R Act, investors may be required to file a formal notification with the FTC and Antitrust Division of the Department of Justice (DOJ) to report transactions that are valued at more than $76.3 million – even if the investor intends to hold only a minority stake.[1] The potential penalty for failing to make a required H-S-R Act filing is $16,000 per day from the date the investor closes on its acquisition until the date it makes a remedial filing.

According to an October 6 FTC press release, Blavatnik acquired shares in TangoMe worth $228 million in August 2014 without making a mandatory pre-closing H-S-R notification. Blavatnik eventually made a remedial filing after he acquired the TangoMe shares, and claimed his violation of the H-S-R Act reporting obligation was inadvertent.

Unfortunately for Blavatnik, this was his second violation of the H-S-R Act. In 2010, Blavatnik acquired shares of the public chemical company LyondellBasell Industries N.V. without notifying the antitrust authorities. Blavatnik made a delinquent post-closing filing in which he conceded his violation of the H-S-R Act. The FTC did not pursue a civil penalty against Blavatnik in that instance based in part on his promise to consult with H-S-R Act counsel before making any future acquisitions. The FTC press release states that “[d]espite his previous commitment, Blavatnik did not consult with HSR counsel prior to the August 23, 2014 acquisition of TangoMe voting securities.”

The Blavatnik action is the third in a recent string of enforcement actions by the FTC. In August, the FTC and DOJ brought an action against Third Point LLC for failing to file notification under the H-S-R Act in reliance on the “passive investment” exemption.[2] While the FTC did not seek a civil penalty in that case, a Federal District Court order imposes significant restrictions on Third Point’s ability to use the passive investment exemption in the future. In September, the FTC obtained a $240,000 against Leucadia National Corporation for its failure to report a conversion of its ownership interest in the financial services company Knight Capital Group, Inc.

The Blavatnik, Third Point and Leucadia National enforcement actions point to increased effort by the FTC to enforce the H-S-R Act reporting requirements. All investors must be on the alert and should consult with H-S-R Act counsel before making any acquisitions – including minority acquisitions – if the deal value is above the $76.3 million size of transaction threshold.

[1] The FTC adjusts the H-S-R Act monetary thresholds in mid-January of each year. The minimum value of voting securities or other interests that must be exceeded before an H-S-R Act filing may be required is $76.3 million for 2015. 

[2] Under the H-S-R Act, an acquisition of voting securities that exceeds the $76.3 million filing threshold may be exempt from a notification requirement if the investor (1) will not hold greater than 10% of the target’s outstanding voting stock and (2) intends to hold the stock solely for purposes of investment.