Antitrust Law Daily Wrap Up, TOP STORY: Billionaire to pay $656,000 civil penalty for HSR Act violation, (Oct 6, 2015)

By Jeffrey May, J.D.

A $656,000 civil penalty announced today against billionaire businessman Len Blavatnik should serve as a warning for those considering an acquisition of voting securities without conducting a Hart-Scott-Rodino (HSR) Act review of the transaction. The Department of Justice has filed a complaint, on behalf of the FTC, in the federal district court in Washington, D.C. against Blavatnik for violating the HSR Act. The government alleged that the investor acquired more than 2.8 million shares of voting securities in a California technology startup through his company Access Industries without observing the Act’s notification and waiting period requirements. At the same time, the government filed a proposed consent decree that, if approved by the court, would resolve the allegations (U.S. v. Blavatnik, Civil Action No. 1:15-cv-01631; FTC File No. 151 0060).

According to the government's complaint, Blavatnik violated the HSR Act by failing to inform the government before Access Industries' August 2014 acquisition of 2,818,182 shares of TangoMe voting securities. Because the transaction resulted in Blavatnik controlling approximately 29.1% of TangoMe's outstanding voting securities valued at approximately $228 million, the transaction was reportable under the Act. The transaction exceeded the HSR Act's $75.9 million size-of-transaction threshold. A corrective filing was subsequently made in December 2014; however, the waiting period on the corrective filing did not expire until January 16, 2015. Thus, Blavatnik was liable for civil penalties of up to $16,000 per day during the period between the acquisition and January 16.

The government alleged that, prior to the acquisition, neither Access nor Blavatnik conducted any HSR review or consulted with HSR counsel. This was particularly problematic for Blavatnik because of an earlier HSR issue. While the government sometimes excuses a first-time HSR violation, Blavatnik had to make a corrective filing in 2010 with respect to his purchase of voting shares of LyondellBasell Industries N.V., a public multinational chemical company. At that time, Blavatnik purportedly made representations to the Commission that he would discuss reportability with HSR counsel prior to any future acquisitions. The FTC did not pursue a civil penalty against him for that earlier violation, but the agency's Premerger Notification Office informed Blavatnik that he was accountable for ensuring compliance with the Act. The proposed consent decree, resolving allegations over the TangoMe acquisition, would require Blavatnik to pay $656,000 in civil penalties.

Other recent HSR Act cases. Actions for HSR violations are relatively rare. Generally, the agencies bring one or two each year. However, the action against Blavatnik is the third so far in 2015. It comes just two weeks after holding company Leucadia National Corporation had its wrist slapped for completing an acquisition of more than 16 million shares of KCG Holdings, Inc. (KCG) voting securities in July 2013 without filing and observing the waiting period. As was the case with Blavatnik, Leucadia previously failed to make a timely HSR filing. Leucadia agreed to pay a $240,000 civil penalty to settle the allegations under a proposed consent decree that is awaiting court approval.

In August, three affiliated hedge fund companies and their management company, Third Point LLC, agreed to settle charges that they violated premerger reporting laws in connection with their 2011 acquisitions of stock in Yahoo! Inc. In that case, civil penalties were not assessed because the violation was apparently inadvertent and short-lived, and it was the defendants’ first violation of the HSR Act. A proposed consent decree that prohibits the firms from relying on the Act’s investment-only exemption under certain circumstances also is awaiting court approval.

Attorneys: Kenneth A. Libby for FTC and U.S. Department of Justice. Daniel Abuhoff (Debevoise & Plimpton LLP) for Len Blavatnik.

Companies: Access Industries; LyondellBasell Industries N.V.; Third Point LLC; Leucadia National Corp.; KCG Holdings, Inc.

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