On June 23, 2009, the Federal Trade Commission (FTC) and Antitrust Division of the Department of Justice (DOJ) announced that John Malone will pay a $1.4 million civil penalty to settle charges that he violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended (HSR Act). The DOJ, at the FTC’s request, filed a civil antitrust lawsuit in federal court against Mr. Malone for failing to comply with the HSR Act’s premerger reporting and waiting period requirements in connection with purchases of voting securities of Discovery Holding Company (Discovery).
Factual Background for Enforcement Action
Mr. Malone is Chairman of the Board of Liberty Media Corporation (Liberty Media) and Chief Executive Officer and Chairman of the Board of Discovery.
In May 2005, Mr. Malone, who already held voting securities of Liberty Media, made a premerger filing under the HSR Act to acquire additional voting securities of Liberty Media. At that time, Liberty Media was the parent of Discovery. On July 21, 2005, Discovery was spun off from Liberty Media and became its own ultimate parent. On August 9, 2005, without making a filing under the HSR Act, Mr. Malone acquired Discovery voting securities that resulted in him holding an amount of Discovery voting securities valued in excess of the HSR Act’s reportability level then in effect. Mr. Malone continued to make additional acquisitions of Discovery voting securities through April 2008.
On June 12, 2008, Mr. Malone made a corrective filing with regard to his prior acquisitions of voting securities of Discovery in violation of the HSR Act. In a letter accompanying the 2008 corrective filing, Mr. Malone stated that, in determining not to file in August 2005, he had relied on a 2001 FTC Premerger Notification Office informal interpretation. That informal interpretation indicated that a filing for the acquisition of a non-controlling amount of voting securities of a parent corporation could cover acquisitions of voting securities of a subsidiary of that parent corporation. Mr. Malone stated that neither he nor his counsel had been aware of a February 2005 informal interpretation that disavowed the 2001 interpretation. Mr. Malone also stated with regard to his acquisitions from August 9, 2005 through April 2008 that neither he nor his counsel on his behalf checked the database of informal interpretations maintained by the FTC Premerger Notification Office, or contacted the FTC Premerger Notification Office to ask whether the 2001 interpretation was still the FTC Premerger Notification Office’s policy or to otherwise ask if a filing for a parent corporation covered acquisitions of a subsequently divested subsidiary.
The DOJ complaint alleged that on June 14, 2008, two days after making the corrective HSR Act filing and before the HSR Act waiting period had expired, Mr. Malone again violated the HSR Act. At that time, he exercised two options that were about to expire to acquire additional voting securities of Discovery. Mr. Malone exercised these options using an escrow arrangement but, according to the DOJ’s complaint, the HSR Act still was violated as the escrow arrangement did not prevent the passing of beneficial ownership to Mr. Malone while the HSR Act waiting period was pending.
Mr. Malone had a prior violation of the HSR Act for an acquisition made in 1985 for which he made a corrective filing in 1991. The FTC did not seek civil penalties with regard to that 1985 acquisition.
Important Points to Remember Regarding HSR Act Compliance
This enforcement action is an important reminder of the need for strict adherence to obligations under the HSR Act. Other important reminders regarding HSR Act compliance from this matter include:
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