United States: Individual Investors to Pay a Total of US$900,000 for HSR Filing Violations as Scrutiny of Personal Stock Acquisitions Continues

Last Updated: January 21 2017
Article by Michael B. Bernstein, Justin P. Hedge and Peter Danias

On January 17, 2017, two individual investors settled their respective cases with the Federal Trade Commission (FTC) to resolve allegations of failing to file notification under the Hart-Scott-Rodino Act (HSR Act) for personal stock acquisitions. In the first case,1 the investor agreed to pay US$720,000 in civil penalties related to two acquisitions: a nine-year-old open market purchase of shares in the company where the investor continues to serve as a director and a more recent acquisition by his spouse, which must be aggregated with the holdings of a spouse when evaluating if filing thresholds are crossed. In the second case,2 the investor agreed to pay US$180,000 in civil penalties to resolve allegations of a failure to file a second notification when crossing a higher HSR Act threshold as his holdings increased—a violation lasting less than a month due to a subsequent sell-down of his holdings.

Coming on the heels of two other cases in late 2016 that resulted in fines of  US$720,000 and  US$656,000, these most recent cases demonstrate that the antitrust authorities continue to enforce the HSR Act's filing requirements as a bright-line rule equally applicable to companies and individuals.  Moreover, the HSR Act rules are complex, which necessitates ongoing vigilance.

In these most recent cases, both investors had settled previous allegations for failure to file under the HSR Act and were alleged to be in violation again—in part due to arcane aggregation rules and a secondary threshold triggered just six months after obtaining clearance at a lower notification threshold. Given that the fines for failing to file accrue daily and were recently increased to just over US$40,000 per day, high-net worth investors should consider their HSR Act filing obligations carefully. Additionally, because company directors and executives may have filing obligations for acquisitions of company stock (whether through open market purchases or compensation awards) companies should consider whether their own directors and managers have sufficient compliance practices in place or if such compliance programs should be instituted by the company due to potential reputational issues for the company and its board members.

Director Misses HSR Filing for Company Stock Acquisition and Separately Crosses aThreshold Under Spouse Aggregation Rule

On January 17, 2017, Mitchell Rales agreed to pay US$720,000 to resolve allegations of two missed HSR Act filings. The first occurred in 2008 when he made an open market purchase of stock of a company where he was serving, and continues to serve, as a director.3 The second occurred in 2011 due to an open market acquisition of a different company's stock by his spouse. At the time of his spouse's purchase, Mr. Rales held substantial stock in the same company, Colfax Corporation (Colfax). Under the HSR Act rules,4 Mr. Rales' holdings of Colfax stock were required to include any Colfax stock held by his spouse such that when the open market acquisition was made in her name, his holding also increased and triggered an HSR Act filing. Mr. Rales had previously settled allegations of an HSR Act filing violation in 1991 and agreed to pay US$850,000.

Investor Violates Filing Requirement for Second Acquisition of Company Stock

Also on January 17, 2017, investor Ahmet H. Okumus agreed to pay US$180,000 for failing to file notification under the HSR Act prior to acquiring stock of Web.com Group, Inc. (Web.com) on June 27, 2016.5 Mr. Okumus previously had missed a filing when acquiring stock of Web.com in 2014, but was not required to pay a fine as a first-time offender after making a corrective filing. While Mr. Okumus made a filing and obtained clearance for his 2014 purchase, that filing was made at the lowest notification level and allowed him to purchase additional shares up only to the next threshold, currently US$156.3 million. As a result of Mr. Okumus's June 2016 acquisition, he held shares of Web.com in excess of US$156.3 million. However, he did not make another filing as required by the HSR Act. According to the FTC, the amount of Mr. Okumus' fine reflected the fact that he "promptly corrected the violation after discovery by selling voting securities" on July 14, 2016 to bring his total holding below the US$156.3 million threshold.6


The US antitrust authorities regularly pursue violations against investors—both individuals and institutional investors—for failure to observe the requirements of the HSR Act. There have been eight such cases brought since 2015 with fines averaging about US$175,000 and including a record fine of US$11,000,000 and enforcement is likely to continue. While the authorities historically have declined to require a fine to resolve inadvertent first offenses, they appear to be making a concerted effort to put the investment community on notice of the HSR Act's requirements, and may decide to take a harder line in the future. For example, the FTC's 2016 case against Fayez Sarofim was the first time the FTC took action against him, yet it required US$720,000 in civil penalties for four different violations spanning a decade.

With such continued enforcement, individuals and institutional investors should consider their compliance programs and ensure that they have sufficient checks in place to detect potentially reportable transactions. Additionally, companies may want to evaluate whether to include directors and managers in their own compliance programs as such individuals may be required to file for their own acquisitions, including through stock compensation programs.

These most recent cases highlight a few of the HSR Act's rules in particular that ought to be considered in evaluating compliance programs:

  • Individuals need to aggregate the holdings of a spouse and minor children.  Individuals that are significant investors need to consider monitoring not only acquisitions made in their own name, but also those made by certain family members. When determining if a notification threshold is met, the HSR Act rules require individuals to aggregate holdings of a spouse and minor children as well as any stock the individual may hold indirectly through controlled entities, including certain trusts.
  • There are limits to what acquisitions are permitted under prior HSR Act clearances.  HSR filings and clearances are specific to one of several thresholds that trigger a filing under the HSR Act. Acquiring persons need to make additional filings when each higher notification threshold is crossed. Moreover, a filing and clearance operate to allow acquisitions only for five years and only if the notified threshold is crossed within one year. Accordingly, investors are not necessarily compliant for all future purchases of a stock once an HSR Act filing is made, and ongoing monitoring is necessary.
  • Violations are ongoing until a sell-down.  HSR Act filing violations are continuing in nature with fines accruing daily and can go on for years so long as total holdings of a stock remain above a reportable threshold. Parties that discover a violation might consider a sell-down to end a violation immediately as preparing a corrective filing can take time, and a party will continue to be in violation throughout the ensuing thirty-day waiting period.

  1. Complaint, United States v. Mitchell P. Rales, 17-cv-00103 (D.D.C. Jan. 17, 2017).
  2. Complaint, United States v. Ahmet H. Okumus, 17-cv-00104 (D.D.C. Jan. 17, 2017).
  3. Competitive Impact Statement, United States v. Mitchell P. Rales, 17-cv-00103 (D.D.C. Jan. 17, 2017).
  4. 16 C.F.R. § 801.1(c)(2).
  5. Competitive Impact Statement, United States v. Ahmet H. Okumus, 17-cv-00104 (D.D.C. Jan. 17, 2017).
  6. Id. at 4.

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