At the Federal Trade Commission’s request, the U.S. Department of Justice (DOJ) today filed a complaint in federal district court to obtain civil penalties against William H. Gates III for violating the reporting requirements of the Hart-Scott-Rodino (HSR) Pre-merger Notification Act. The DOJ also filed a stipulation and proposed final judgment that requires Gates to pay an $800,000 civil penalty to settle the case.
This matter arose from Gates’s acquisitions of voting securities of Republic Services, Inc. and ICOS Corporation (ICOS). On November 2, 2001, Gates acquired additional shares of Republic that put his holdings over 10 percent of the outstanding shares of Republic. Gates did not file under the HSR Act prior to making that acquisition, relying on the exemption from the reporting requirements for acquisitions solely for the purpose of investment. That exemption is limited, however, to holdings that do not exceed 10 percent of the shares. Gates discovered the violation and made a corrected filing on November 16, 2001.
The FTC’s Premerger Office informed Gates by letter that it would not recommend civil penalties for this violation, but also informed him that he “is accountable for instituting an effective program for entities he controls to ensure full compliance with the Act’s requirements.” Nevertheless, six months later on May 9, 2002, Gates violated the HSR Act when he acquired shares in ICOS. Again, Gates did not file under the HSR Act prior to acquiring the voting securities, relying on the same exemption. Gates was not eligible for the exemption for acquisitions made solely for the purpose of investment because he was on the board of directors of ICOS.
“This case demonstrates the need to become fully aware of the reporting requirements of the HSR Act,” said Barry Nigro, Deputy Director of the FTC’s Bureau of Competition.
“Although the Commission has often declined to seek penalties from a party that makes an inadvertent mistake and fails to file, once he is aware that he doesn’t have a complete understanding of the HSR Act he needs to go back and learn about the Act so he doesn’t make a second mistake.”
“The Commission will seek substantial penalties for the second mistake,” Nigro noted. “The penalties were reduced from the statutory maximum because Mr. Gates cooperated with the Bureau’s investigation and agreed to settle the matter quickly, before the Commission was required to invest significant resources.”
The Commission vote to refer the complaint to the U.S. Department of Justice for filing on the FTC’s behalf was 5-0.
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