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When a media titan purchases a large stake in a corporation with the potential of affecting commerce in the United States, the government wants to know about it.
Barry Diller has agreed to pay $480,000 to settle allegations that he violated the notice and waiting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The law is meant to give federal antitrust agencies an opportunity to investigate a proposed transaction to consider the possibility of moving to block it.
The IAC chairman got into trouble after he acquired 120,000 shares of voting securities of Coca-Cola on Nov. 1, 2010. As a result, he held in excess of $63.4 million of stock, about the threshold for triggering notification obligations.
Between November and April 26, 2012, Diller acquired an additional 605,000 shares, and according to a complaint (read here) that was filed by the United States of America against Diller in D.C. federal court on Tuesday, “each acquisition of Coke voting securities by Diller during this time period resulted in Diller holding a reportable amount of Coke voting securities.”
But he didn’t file any HSR notice and on Aug. 27, 2012, he purchased an additional 264,000 shares of Coke for approximately $20.3 million. That brought his stake to about $136.4 million.
The following month, the Coke-loving media mogul was contacted by the in-house counsel for Coke about HSR.
Diller soon made corrective filings.
But the FTC wasn’t satisfied because he was “in continuous violation of the HSR Act” from Nov. 1, 2010, to June 22, 2012.
In seeking the remedy, the U.S. government notes that Diller allegedly violated the HSR before — in 1998, when he controlled USA Networks and it acquired CitySearch. Fifteen years ago, Diller made a corrective filing for this and is said to have “acknowledged that the transaction was reportable under the HSR Act but asserted that the failure to file and observe the waiting period was inadvertent.”
The FTC now says that Diller has agreed to pay $480,000 to settle the latest dispute. The commissioners voted 4-0-1 (one member abstained) to refer a complaint and settlement to the Justice Department.
Diller offered a long explanation of why he settled:
“While I do not dispute the facts the Federal Trade Commission chose to selectively highlight in their press release regarding my agreement to pay a fine for the purchase of Coca Cola shares, I was dismayed at what they failed to say. I chose to settle this matter rather than pursue the time and expense of a court challenge because the FTC agreed to accept a small fraction of the fines that their theory, if accurate, would have entitled them to. In fact, I am told that the amount I agreed to pay is one of the smallest percentages the FTC has settled for with respect to purported violations of the HSR Act. I had assumed that the FTC would explain why it agreed to such a small settlement, but since they did not, I feel it is important that the relevant facts are noted.
Firstly, the original infraction cited by the FTC was a technical failure to file by USA Networks in 1998 in connection with a transaction that was initially below the HSR thresholds. Once USA Networks discovered that the transaction value had increased during the process, the company promptly notified the FTC, and filed immediately thereafter at the FTCs’ request. In fact, the FTC did not seek to impose any fines or penalties in that matter.
As to the Coca-Cola purchases, I made those in my personal capacity. I was not made aware of the necessity to file, and the moment I became aware, I filed promptly and complied with all regulations – the only infraction was in the timing. I gained no advantage of any kind and there was no harm to Coca-Cola shareholders, nor to anyone else. While I am surely not suffering, one can fairly question the tactics used by the FTC in penalizing individuals for de minimis open market share purchases and inadvertent paper shuffling.
This matter highlights the need for the antitrust agencies to make explicit that officers and directors that choose to align their interests more closely with the shareholders they serve should be subject to higher HSR thresholds. My understanding is that the HSR Act is designed to help our government prevent anti-competitive deals. It is inconceivable that my less than % investment in Coca-Cola shares, made as a director of Coca-Cola, could harm competition. Ironically, corporate governance gurus encourage such purchases, while the FTC seeks to deter them through filing fees, delays and fines. I do not know the rationale for the government to penalize such purchases with hundreds of thousands of dollars in HSR filing fees.
I don’t want to burden the public with more words on this matter – the only reason for this statement is because I care about good citizenship and good government, and it would be unfair to both not to comment.”
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