The Department of Justice (the "DOJ") has proposed an $850,000 fine to settle civil charges brought against an investment fund for Hart-Scott-Rodino Act (the "H-S-R Act") violations. The DOJ alleged that the investment fund failed to comply with the H-S-R Act premerger notification requirements when it acquired voting securities of a publicly-traded company.
The investment fund was found not to have filed a premerger notification form after acquiring voting securities in an amount that triggered such filing obligation. The investment fund countered by relying on the "investment only" exemption to the H-S-R Act filing requirements. This exemption applies to acquisitions of securities made solely for the purposes of investment as long as the acquirer does not hold in excess of 10% of the issuer's voting securities. The exemption is further conditioned upon the acquirer having no intention of participating in the formulation, determination or direction of the basic business decisions of the issuer.
The investment fund's acquisition of the voting securities was found not to qualify for the investment only exemption based on actions taken by the investment fund subsequent to such acquisition. Specifically, the investment fund was found to have contacted the issuer's chief executive officer to discuss ideas for improving the business and request two seats on the issuer's board of directors.