An XFINITY to Pay HSR Penalties for Stock Grants

Some get their entertainment from Comcast's XFINITY line of products and services. For those who deal with stock grants where the resulting stock holdings have a very high value, however, a recent report, far from being entertaining, may be, to say the least, a bit sobering.

The issue relates to filing requirements that compensation lawyers may not see every day - the filing requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Essentially, under HSR, a 30-day advance-notice requirement may apply in the event of certain acquisitions of voting stock. Under these rules, if certain dollar thresholds are met, an advance filing may need to be made with the FTC and the DOJ. The FTC takes the position that these rules can apply to transactions involving individuals. Concerns about possible HSR penalties in the context of executive compensation have been hovering in the background in some circles for years, but, like the airwaves, these concerns have largely floated about somewhat harmlessly in the ether.

Under the HSR rules, if the value of the securities acquired is $66 million or less, there is no reportable transaction. After $66 million, the transaction may need to be reported. Reporting obligations could attach to an individual if the individual has $13.2 million in total assets, and would apply regardless of the individual's assets if the value of the securities is more than $263.8 million. Critically for these purposes, one needs to aggregate value of the proposed transaction with the value of all prior holdings.

It may be argued that no takeover or other corporate transaction needs to be involved in order for a compensatory grant, standing alone, to be subject to the rules. Thus, if one surmises that these rules apply in the context of compensatory grants of voting stock, HSR issues could strike maybe almost as surprisingly as a Tebow pass at the beginning of overtime. (In addition, the FTC position is that the so-called "passive investor" exemption from these rules is not available to officers and directors.)

And while the HSR dollar thresholds are significantly high, the thresholds are - and this is important - by no means unreachable. In this regard, even assuming that a particular compensatory acquisition is below the $65 million amount, the aggregation rules can be tricky. For example, if an executive with sufficient assets already has $65.9 million in voting stock and is granted another $200,000 in voting stock, the filing requirements may apply.

The potential ramifications are not inconsequential. The acquiror must pay a filing fee of from $45,000 to $280,000 depending on size of the transaction, and there would need to be a 30-day waiting period before closing of the acquisition. More to the point here, penalties for failure to file can theoretically be up to $16,000 per day - $16,000 per day! - from date of acquisition.

So all of this now comes home to roost for Comcast and Brian Roberts, its CEO.* Indeed, he had once made an HSR filing, but apparently failed to realize that the filing doesn't shield acquisitions forever. The DOJ, at the request of the FTC, pursued the case, and he was accused of failing to satisfy the HSR filing requirements. The case was settled (concurrently with the filing of the action) for . . . $500,000.** Apparently, the maximum fine in the case could have reached to the neighborhood of . . . $7 million. Well, if you had any doubts as to whether these hopefully theoretical issues have real bite, I guess you don't have to wonder any more. Geez.

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* Presumably, he's not also the second baseman for the Baltimore Orioles.
** It hasn't been an overly good run lately for executives who haven't done a whole lot wrong. In November 2011, the one-time CEO of CSK Auto, Maynard Jenkins, settled a claim under the SOX compensation-disgorgement rules for $2.8 million - even though he was not even so much as accused of having engaged in any wrongdoing.