On December 6, 2018, the Federal Trade Commission (“FTC”) announced that James Dolan, the Executive Chairman and CEO of Madison Square Garden Company, a publicly-traded company (“MSG”), agreed to pay over $600,000 in civil penalties after an alleged violation of the Hart-Scott-Rodino Act (the “HSR Act”) in connection with the acquisition of voting securities of MSG. These allegations stem from Mr. Dolan’s failure to comply with certain HSR Act notification and waiting period obligations following the vesting of restricted stock units (“RSUs”) into voting securities of MSG. Under the HSR Act, companies and individuals must notify the FTC and the Department of Justice (“DOJ”) of acquisitions that cause the value of their voting securities in a company to increase above certain dollar value thresholds and then observe a waiting period before completing their transactions.
According to a complaint filed by the DOJ, in August 2016, Mr. Dolan properly made an HSR Act filing and observed the requisite waiting period when he acquired voting securities of MSG due to the vesting of RSUs in excess of the HSR Act’s minimum size of transaction threshold, referred to as the “$50 million (as adjusted)” threshold. For 2018, that threshold is $84.4 million. During the five-year period following this filing, Mr. Dolan was permitted under the HSR Act to acquire additional voting securities of MSG without making another HSR Act filing so long as he did not exceed the next relevant HSR Act threshold, referred to as the “$100 million (as adjusted)” threshold ($168.8 million in 2018).
However, in September 2017, Mr. Dolan acquired additional voting securities of MSG due to the vesting of RSUs, causing his holdings of voting securities of MSG to exceed the HSR Act’s $100 million (as adjusted) threshold, without having filed under the HSR Act or observed the HSR Act’s waiting period before completing the acquisition. While the FTC will typically give parties who inadvertently fail to make an HSR Act filing one “free pass,” this was Mr. Dolan’s second HSR Act violation.
As a result, although Mr. Dolan eventually made a corrective HSR Act filing in November 2017, the FTC and DOJ nevertheless pursued civil penalties. While Mr. Dolan could have been fined over $4 million for this violation based on the current maximum civil penalty of $41,484 (adjusted annually) per day, he agreed to pay $609,810 to settle the lawsuit.
The FTC recently highlighted the vesting of RSUs as a commonly missed reportable transaction under the HSR Act. This action by the FTC and DOJ serves as continued evidence that the antitrust authorities will be aggressive in enforcing HSR Act reporting requirements even in the absence of any obvious antitrust concerns.
It is important that companies and executives monitor their holdings of voting securities and equity compensation schedules of both public and private companies to take into account potentially reportable transactions under the HSR Act. Failure to file for reportable transactions can result in substantial penalties.
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If you have any questions concerning the foregoing, or the HSR Act generally, please contact your Seward & Kissel relationship attorney, Nick Katsanos in the firm’s Business Transactions Group or Kevin Neubauer in the firm’s Investment Management Group.
