Bad Advice from HSR Counsel Costs Leucadia National $240,000 | Practical Law

Bad Advice from HSR Counsel Costs Leucadia National $240,000 | Practical Law

The Federal Trade Commission (FTC) fined Leucadia National Corporation $240,000 for failure to comply with Hart-Scott-Rodino (HSR) requirements in a 2013 conversion of ownership interests. Leucadia was wrongly advised by experienced HSR counsel that the transaction was exempt from HSR reporting requirements under the Rule 802.64 institutional investor exemption.

Bad Advice from HSR Counsel Costs Leucadia National $240, 000

Practical Law Legal Update w-000-6109 (Approx. 3 pages)

Bad Advice from HSR Counsel Costs Leucadia National $240,000

by Practical Law Antitrust
Published on 23 Sep 2015 • USA (National/Federal)
The Federal Trade Commission (FTC) fined Leucadia National Corporation $240,000 for failure to comply with Hart-Scott-Rodino (HSR) requirements in a 2013 conversion of ownership interests. Leucadia was wrongly advised by experienced HSR counsel that the transaction was exempt from HSR reporting requirements under the Rule 802.64 institutional investor exemption.
The Federal Trade Commission (FTC) announced that it fined Leucadia National Corporation $240,000 for failure to report a July 2013 acquisition of voting securities as required by the Hart-Scott-Rodino Act. The acquisition was the result of a conversion of Leucadia’s interest in the financial services company Knight Capital Group, Inc. following its consolidation with another financial services company, GETCO Holding Company, LLC to become KCG Holdings, Inc. As a result of the conversion, Leucadia held approximately 13.5% of KCG's outstanding voting securities, valued at $173 million, exceeding the 2013 HSR size-of-transaction reporting threshold of $70.9 million.
In its complaint, the FTC alleged that Leucadia was advised by experienced HSR counsel that the transaction qualified for the institutional investor exemption and an HSR filing was not required. The Rule 802.64 exemption (also known as the institutional investor exemption) exempts those acquisitions of voting securities by an acquiring ultimate parent entity (UPE) that is an institutional investor:
  • Made solely for the purpose of investment.
  • As a result of which that acquiring UPE will hold 15% or less of the target company's voting securities.
However, the exemption does not apply to acquisitions from institutional investors of the same type as any entity included in the acquiring party, like Leucadia. HSR counsel improperly concluded that while the acquiring party was a broker-dealer, the acquired party was not, making the exemption available. However, the FTC alleged that the acquired party qualified as a broker-dealer under the HSR rules, making the exemption unavailable.
Leucadia made a corrective filing in September 2014.
The FTC explained that Leucadia had previously violated the HSR Act for failure to file regarding a 2007 acquisition of interests in a separate entity. Leucadia submitted a corrective filing under the HSR Act in connection with the prior failure to file. The FTC did not fine Leucadia for its 2007 violation, but required that Leucadia institute an HSR compliance program and take responsibility for future HSR compliance.
For more information on the HSR institutional investor and investment-only exemptions, see Practice Note: Investment-only Exemption. For information on civil penalties imposed by the FTC and DOJ for violations of the HSR Act, see HSR Act Enforcement Actions: Comprehensive Civil Penalties Chart.