Corporate Executive Settles Hart-Scott-Rodino Allegations for $609,810

The HSR Act requires that parties to certain acquisitions of voting securities, noncorporate interests and/or assets formally notify the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) in advance and complete a waiting period (usually 30 days) before consummating the acquisition. The adjusted $100 million threshold (currently $168.8 million and subject to a cost-of-living adjustment each February) is distinct from the more commonly recognized $50 million threshold (currently $84.4 million and also subject to adjustment each February). Investors (including individuals, investment funds, and strategic acquirers) may have to file when they plan to cross each threshold, and an issuer (or its “ultimate parent entity”) also may have to make successive filings in such cases. There are three higher HSR notification thresholds for voting securities acquisitions as well; investors with potential reporting obligations often overlook these, too.

According to the civil complaint the DOJ filed at the FTC’s request on December 6, Mr. Dolan violated the HSR Act in September 2017 when he acquired MSG shares through vesting of restricted stock units that he had received as part of his compensation package. Mr. Dolan had filed in August 2016 when his MSG holdings surpassed the adjusted $50 million threshold, but he failed to file and observe the waiting period prior to vesting in 2017. Although Mr. Dolan submitted a corrective filing two and a half months later, the FTC imposed a civil penalty because this was not the first time he had been found not to have complied with HSR requirements. Because Mr. Dolan self-reported the inadvertent filing error and made a corrective filing, however, the FTC settled for a fine less than what would have resulted from applying the maximum per diem penalty rate (currently $41,484 per day, subject to adjustment each January).

The complaint also details the previous instance when Mr. Dolan was deemed not to have complied with the HSR Act. In March 2010, Mr. Dolan acquired voting securities of Cablevision Systems Corporation (CVC) in excess of the adjusted $50 million threshold and later that year acquired additional CVC voting securities surpassing the adjusted $100 million threshold. Mr. Dolan submitted a corrective filing almost two years later explaining that his failure to file was inadvertent. The FTC’s Premerger Notification Office did not recommend a civil penalty in that instance but did notify Mr. Dolan that he would be accountable for implementing a program to ensure HSR compliance.

The recent enforcement action against Mr. Dolan — one example in a long list of such actions against individuals and entities under the HSR Act — is consistent with previous FTC and DOJ enforcement activity. First-time offenders generally receive leniency, but a subsequent violation will likely result in a civil penalty. If the repeat violator submits a voluntary corrective filing, the penalty may be reduced, but it is unlikely to be avoided entirely.

Given the size of the potential penalties for noncompliance, it is important for individuals and companies to remember that automatic vesting and exercising of stock options, as well as conversion of convertible notes into voting securities, may trigger HSR reporting obligations even if the investor previously submitted a filing before crossing a lower voting securities threshold. HSR compliance should be on the radar for anyone who receives voting securities as compensation (and for the companies such individuals serve) and for anyone else who may hold voting shares valued above the adjusted $50 million threshold in a given issuer. Determining reportability requirements can be complex, particularly when transactions involve vesting options or stock awards. For example, under current FTC and DOJ enforcement policies, no individual may claim the HSR exemption for certain acquisitions of voting securities made “solely for the purpose of investment” when acquiring shares in a corporation he or she serves as an officer or director.