Third Point Funds Fined for Violating the Hart-Scott-Rodino Act
October 2, 2019
Third Point LLC, a registered investment adviser, along with three investment funds that it manages (the “Third Point Funds”) recently settled charges filed by the Department of Justice (the “DOJ”) on behalf of the Federal Trade Commission (the “FTC”) that the Third Point Funds violated the premerger notification and waiting period requirements of the Hart-Scott-Rodino Act (the “HSR Act”).
Under the HSR Act, parties engaged in a transaction where certain size-of-transaction and size-of-party thresholds are met are typically required to notify the FTC and the DOJ of the transaction and observe a statutory waiting period (usually 30 days) before consummating the transaction, unless an exemption applies. In June 2016, Dow Inc. (“Dow”) and E.I. du Pont de Memours & Company (“DuPont”) announced a merger, indicating that upon completion of the transaction, the common stock of both companies would cease to be publicly traded and their shareholders would instead hold shares in a single new company, DowDuPont, Inc. (“DowDuPont”). The companies later announced that the transaction was expected to close in August 2017, on which date shares of Dow and DuPont would be converted into shares of the new company. Shares of Dow held by the Third Point Funds were converted into shares of DowDuPont on that date, and as a result of the conversion, each of the Third Point Funds received an aggregate amount of voting securities of the new company in excess of the size of transaction threshold under the HSR Act. The complaint alleges that the Third Point Funds were required to notify the FTC and the DOJ of the transaction and observe the statutory waiting period before the receipt of the shares in the new company. After realizing they failed to file, the Third Point Funds made corrective filings on November 8, 2017, and the waiting period for these corrective filings expired on December 8, 2017.
As part of their settlement with the DOJ, the Third Point Funds agreed to pay $609,810 in civil penalties and will be barred from committing future violations of the HSR Act in connection with corporate consolidations. The total civil penalties that could have been imposed under HSR rules were in excess of $12 million. Third Point LLC is named as a defendant because, as the investment adviser to the Third Point Funds, it had the power and authority to file and observe the waiting period under the HSR Act, but failed to do so.
This settlement serves as a reminder that, with respect to the purchase of publicly traded voting securities, the HSR Act notification and waiting period requirements are not triggered solely by open market purchases, and that investors must be mindful of all changes to their holdings which may trigger HSR Act filing obligations.
If you have any questions concerning the foregoing, or the HSR Act generally, please contact your Seward & Kissel relationship attorney.