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The HSR Act’s notification requirements are usually thought to apply to M&A, but the statute has much broader application than that. In fact, any transaction that results in someone acquiring securities having a value that exceeds the reporting threshold needs to be scrutinized for a possible HSR filing. Many people who have purchased stock in public companies have discovered that to their chagrin. A recent Wilson Sonsini memo says you can add the CEO of GameStop to the list. This excerpt explains:

On September 18, 2024, the FTC announced that Ryan Cohen, chief executive officer and chairman of GameStop, has agreed to a pay civil penalty of nearly $1 million to settle charges that his acquisition of Wells Fargo & Company (Wells Fargo) voting securities violated the HSR Act.

In March 2018, Cohen acquired more than 560,000 Wells Fargo voting securities through an open market purchase. According to the complaint, this acquisition exceeded HSR filing thresholds in effect at the time and therefore triggered Cohen’s obligation to submit an HSR notification to the FTC and the U.S. Department of Justice (DOJ) and observe a waiting period before consummating the acquisition. The complaint states that Cohen failed to do so and was in continuous violation of the HSR Act until he submitted a corrective filing almost three years later on January 14, 2021.

The memo notes that what makes this enforcement action interesting is that it was Cohen’s first violation of the HSR reporting requirements. The FTC typically hasn’t imposed fines in situations involving first-time violations by individuals. Another thing about this proceeding that’s worth noting – particularly when dealing with activists – is that Cohen’s efforts to obtain a board seat at Wells Fargo disqualified him from relying on the “investment only” exemption from the HSR filing requirements.

– John Jenkins