Warren Buffett, the CEO and chairman of Berkshire Hathaway Inc.
(BRK.B - Analyst Report
), has agreed to pay a penalty of $896,000 to settle claims asserted by the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC). The claim states that the company violated the reporting requirements of the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) by failing to report the acquisition of an additional stock of USG Corporation (USG) as part of the exchange of convertible notes in Dec 2013.
The HSR Act necessitates parties to file a notification with the regulatory bodies, and observe a waiting period prior before effecting such transactions. The waiting period is maintained to enable DOJ and FTC to investigate whether a probable transaction would considerably lessen competition, and accordingly be given the green light or investigated and challenged.
Zacks Rank #3 (Hold) Berkshire had gained approximately 28% control in the building products company USG Corporation in Dec 2013, when it exchanged $243.8 million of USG convertible notes for 21.4 million common shares, valued at more than $950 million.
The facts of the case suggest that Buffett failed to comply with the HSR-Act on a technical basis (the deal size of $950 million exceeded more than 3 times the HSR threshold level exempt for filing) and not that he acted fraudulently or with any intent to misrepresent his position in the stock. However, the FTC referred the matter to the Department of Justice (DOJ) for prosecution likely on the grounds of the matter being in the public interest.
Buffett: Second Time Offender
It is significant that this violation was the second offense by Buffett. Previously, he had failed to file a HSR notification in connection with a Jun 2013 transaction, in which it acquired additional shares in Symetra Financial Corp. (SYA - Snapshot Report
) worth $41 million by exercising options. However, FTC did not impose penalties for the first violation.
Other Companies Facing Action
This action by the regulatory agencies sends a strong signal to other companies about the risks of even an inadvertent failure to file. In Sep 2012, FTC fined Biglari Holdings, Inc. , $850,000 to settle allegations of violating the HSR Act in connection with acquisition of shares of Cracker Barrel Old Country Store, Inc. in Jun 2011.
In 2011, the FTC announced that a $500,000 civil penalty was imposed on Brian L. Roberts, the chief executive officer of Comcast Corp. (CMCSK
) (CMCSA - Analyst Report
), for his personal acquisition of additional shares of Comcast stock without complying with the HSR Act.