The Advisors' Blog

This Sullivan & Cromwell memo gives a good reminder about monitoring director & officer stock acquisitions to ensure they don’t trigger a filing under the Hart-Scott-Rodino Act, given the extra focus on antitrust enforcement right now. If a filing is required, the individual needs to do that ahead of the acquisition and wait 30 days before completing the transaction – or face a $44k/day penalty. Here’s an excerpt from the memo:

Under the HSR Act, an officer or director planning a stock acquisition that would result in the individual holding an aggregate amount of voting securities valued in excess of specified dollar thresholds (the lowest of which is currently $92 million) is often required to file an HSR notification form with the FTC and DOJ and observe a 30-day waiting period before consummating the acquisition. There are exceptions to this requirement, including situations in which the individual’s other investment assets are valued under a specific threshold set forth in the HSR Act (currently $18.4 million).

Acquisitions by officers and directors triggering an HSR filing obligation can occur in a number of ways, including (1) the grant of restricted stock, (2) the delivery of shares underlying restricted stock units or performance stock units, (3) the exercise of options, warrants or stock-settled stock appreciation rights, and (4) the acquisition of shares on the open market. When an officer or director acquires a share that has voting rights (such as in the open market), the relevant date for HSR notification purposes is the date the officer or director gains beneficial ownership of the share (which is the right to vote or the right to dispose of the share).

When an officer or director receives a right to acquire a share in the future and that does not carry the present right to vote (such as a restricted stock unit), then the relevant date for HSR notification purposes is usually the date on which the shares are delivered under the right (and therefore the acquirer gains beneficial ownership of the share).

Although the high ownership threshold means it’s rare to trigger an HSR filing, the concept of an enforcement action for missing a filing isn’t just theoretical. Last month, Mike Melbinger blogged about the FTC & DOJ going after an executive and obtaining a $638k penalty for an unreported 2018 stock award.

– Liz Dunshee