- CEO to Pay $500,000 Penalty for Inadvertent, Technical HSR Violation
- December 21, 2011 | Authors: Barry J. Brett; Bob Edwards; Mitchell P. Portnoy
- Law Firms: Troutman Sanders LLP - New York Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - New York Office ; Troutman Sanders LLP - Washington Office
On December 16, 2011, the FTC announced that a $500,000 civil penalty had been imposed on Brian L. Roberts, the chief executive officer of Comcast Corporation, for his personal acquisition of additional shares of Comcast stock without complying with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR). The FTC stated it was limiting the fine to $500,000, rather than seeking the maximum possible fine, for a number of reasons, “including that the violation was inadvertent and technical; that it was apparently due to faulty advice from outside counsel; that Roberts did not gain financially from the violation; and that he reported the violation promptly once it was discovered.”
HSR requires parties to certain acquisitions meeting HSR’s jurisdictional tests (and not otherwise exempted) to provide the Federal Trade Commission (FTC) and Department of Justice with information for use in evaluating whether to raise antitrust objections to the proposed transaction. HSR violations can result in a civil penalty of as much as $16,000 per day.
According to the complaint filed by the Justice Department (on behalf of the FTC), Roberts, who at the time was the “ultimate parent” of Comcast for HSR purposes, complied with HSR in 2002 in connection with the merger between Comcast and AT&T Broadband. Under HSR, Roberts thereafter could acquire additional Comcast stock for five years without further HSR compliance (with certain exceptions not applicable here). After that five-year period expired, however, the general HSR rule again would apply to him; namely, that all Comcast stock already held by him would be aggregated (for HSR purposes) with any additional Comcast stock he were to acquire.
Nevertheless, after that five-year period expired, Roberts acquired additional Comcast stock, albeit under circumstances that did not alert him (or his advisors, apparently) to the HSR compliance obligation. Most of the additional stock was acquired upon the vesting of “restricted stock units” (RSUs) Roberts had received as part of his compensation as Comcast’s Chairman and CEO, and the balance of the additional stock was acquired through the automatic reinvestment of dividends, etc., earned on Comcast stock already held in Roberts’ 401(k) account. The RSUs gave him the right to receive Comcast stock at a fixed point in the future, conditioned upon continued employment and/or meeting certain performance targets; but until the actual issuance of the underlying stock the RSUs did not themselves afford the holder any voting or dividend rights.
The FTC did not disclose the nature, or timing, of the faulty legal advice Roberts had received.
Notwithstanding the circumstances surrounding these acquisitions, the FTC would not forego a civil penalty entirely, in part because Roberts, as the “ultimate parent” of Comcast before the AT&T transaction, technically had been the person responsible for two different HSR violations committed by Comcast (in 1999 and 2000). Although corrective filings were made for those two earlier violations, the FTC did not also pursue civil penalties for them.
The Roberts situation involves a perfect storm of conditions that sometimes appear in the case of senior corporate executives. He had assets above the HSR size-of-parties threshold (currently $13.2 million); his Comcast stock was valued above the HSR size-of-transaction threshold (currently $66.0 million); and his additional acquisitions were made under circumstances (the vesting of employment compensation RSUs; and automatic reinvestments under a 401(k)) that don’t immediately bring HSR to mind. In Roberts’ case, though, there was one additional, aggravating factor -- he technically had been the person responsible for prior HSR violations by his company.
The confluence of conditions led to the HSR violation; the aggravating factor presumably resulted in the fine.