FTC Charges Two Individuals with HSR Act Violations
The Federal Trade Commission (FTC) fined two separate individuals, Ahmet H. Okumus and Mitchell P. Rales, for failing to make Hart-Scott-Rodino (HSR) Act filings related to their purchases of voting shares. Okumus was fined $180,000 and Rales $720,000.
On January 17, 2017, the FTC announced that it settled two separate enforcement actions with individuals relating to their failure to comply with HSR Act filing requirements, including against:
Ahmet H. Okumus for $180,000 relating to his purchase of over $150 million of Web.com Group Inc. shares.
Mitchell P. Rales for $720,000 relating to his purchase of shares of Colfax Corporation and Danaher Corporation.
The DOJ alleged in its complaint that on June 27, 2016, Okumus acquired voting securities of Web.com through his hedge fund, Okumus Opportunistic Value Fund, Ltd., so that his holdings were in excess of the $100 million HSR threshold (as adjusted) without first filing and observing the HSR waiting period. In November 2014, Okumus had filed a corrective HSR form relating to a previous inadvertent failure to file. Okumus's HSR filing allowed him to acquire Web.com voting securities in excess of the $50 million threshold (as adjusted) but not in excess of the $100 million threshold (as adjusted) for a period of five years after the expiration of the waiting period on the filing. Okumus was in violation of the HSR Act for 17 days, from June 27, 2016, until July 14, 2016, when he sold shares of Web.com so that his holdings were valued below the $100 million HSR threshold (as adjusted). His approximate per day penalty was $10,588. The FTC had not required Okumus to pay a civil penalty in his first failure to file.
The DOJ alleged that Rales failed to file under the HSR Act before acquiring:
Colfax shares in excess of the $100 million (as adjusted) HSR threshold.
Danaher shares in excess of the $500 million (as adjusted) HSR threshold.
Rales controlled Colfax before May 7, 2008 because he held more than 50% of its shares. As a result, an HSR exemption (16 C.F.R. 802.30) allowed him to acquire additional Colfax shares without submitting an HSR form or observing the waiting period. However, on May 7, 2008, after an initial public offering of Colfax's shares, Rales' percentage ownership decreased so that he no longer controlled Colfax. On October 31, 2011, Rales's wife bought shares of Colfax, which were attributed to Rales under the HSR Act. This acquisition resulted in Rales holding Colfax shares valued in excess of the $100 million (as adjusted) HSR threshold, which he acquired without first filing an HSR form and observing the HSR waiting period.
In January of 2008, Rales also acquired shares of Danaher in the open market that resulted in his owning shares valued at $2.3 billion, in excess of the $500 million (as adjusted) HSR threshold without first filing and observing the HSR waiting period.
Rales later made a corrective HSR filing relating to the Colfax and Danaher stock acquisitions, whose waiting period expired on March 28, 2016. The corrective filing stopped civil penalties from continuing to accrue on his violations. He was charged with violating the HSR Act for approximately 4,589 days, including 1,610 days on the Colfax acquisition (from October 31, 2011 to March 28, 2016) and 2,979 days on the Danaher acquisition (from January 31, 2008 to March 28, 2016).
Rales had settled a previous HSR enforcement action in 1991 by agreeing to pay a civil penalty of $850,000.
For more on HSR penalties for failure to file, see Practice Note, HSR Act Violations: Failure to Make an HSR Filing ( www.practicallaw.com/3-521-4631) and HSR Act Enforcement Actions: Comprehensive Civil Penalties Chart ( www.practicallaw.com/8-564-9546) .