Individual Investors Pay Civil Penalties for Failing to Report Acquisitions of Voting Securities to the Federal Trade Commission

The Hart-Scott-Rodino Act (“HSR Act”) requires companies and individuals to report large transactions above certain thresholds to the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”), and then to observe a 30-day waiting period before closing their transactions. In two recent cases, investors resolved FTC allegations that they failed to observe these requirements by paying hundreds of thousands of dollars in civil penalties.

According to a complaint filed by the FTC and the DOJ in the U.S. District Court for the District of Columbia, hedge fund founder Ahmet H. Okumus failed to file with the FTC when he acquired voting securities in Web.com through his hedge fund on June 27, 2016, despite the fact that his acquisition exceeded the filing threshold. The complaint further alleges that Okumus was in violation of the HSR Act until July 14, 2016, when he sold 33,200 voting securities of Web.com, which put him below the HSR Act threshold. Okumus asserted that his HSR violation was inadvertent, but the FTC nevertheless sought penalties because Okumus had previously violated the HSR Act by failing to file upon a prior acquisition of voting securities in Web.com in 2014. To resolve the FTC’s current allegations, Okumus agreed to pay $180,000 in civil penalties.

In a separate matter, the FTC alleged that entrepreneur Michael P. Rales violated the HSR act by failing to file as required when his wife acquired voting securities above the filing threshold in Colfax. According to a complaint filed by the FTC and the DOJ in the U.S. District Court for the District of Columbia, Rales was in violation of the HSR Act from October 31, 2011, when he acquired the voting securities, through March 28, 2016, when the waiting period on a corrective filing made by Rales expired. Like Okumus, Rales contended that his HSR violation was inadvertent, but Rales had also previously violated the HSR Act; in 1991, he paid civil penalties to resolve an earlier enforcement action alleging that he failed to file as required by the HSR Act. Rales agreed to pay $720,000 to settle the FTC’s current allegations.

These agency enforcement actions demonstrate the importance of understanding and complying with the HSR Act’s requirements, particularly the filing thresholds, which are updated annually. To discuss how these requirements might impact any transactions that you or your business undertake, please contact the authors.

Drastic Changes to Sudan Sanctions with New OFAC General License

Before President Obama’s exit from The White House, he removed most of the sanctions in place against Sudan.  While President Trump and the Secretary of State ultimately have the final decision, it is believed they were consulted by the Obama administration about these changes.  The relaxed Sudan sanctions will allow U.S. persons to engage in virtually all commercial transactions with Sudan and the government of Sudan.  To learn more about the new general click here.

U.S. Antitrust Agencies Update International Enforcement Guidelines

The Department of Justice and Federal Trade Commission have revised the Antitrust Guidelines for International Enforcement and Cooperation after twenty years.  These revisions, effective on January 13th, 2017, stress the need for collaboration between competition agencies in a globalized economy.  To read more about the guidelines please click here.

How CFTC’s Aggressive Enforcement in 2016 Could Mold Compliance Efforts in 2017

U.S. Commodity Futures Trading Commission (“CFTC”) shook things up in 2016 with new theories and fresh interpretations of the law.  Along with this came hefty fines reaching up to $1.2 billion in total.  CFTC wasn’t the only regulatory group handing out large fines but the National Futures Association (“NFA”) also collected around $700,000.  Between the quick enforcement and diverse violations in 2016, it is more important than ever to be in compliance.  To read more about key takeaways of CFTC’s enforcement agenda click here.

OFAC Gives Clarity on Cuba Sanctions with New FAQs

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) added five new Frequently Asked Questions (FAQs) on 6 January 2017. The new FAQs were in reference to a general license that OFAC issued on October of 2016.  The license considerably lessened the ‘180-day’ rule – a restriction that makes foreign-flag vessels wait at least 180 days after visiting a Cuban port before they can come to a U.S. port.  The new FAQs discussed here provide clarity on several concerns related to this and relevant rules.

The Customs Compliance Letters and What They Really Mean

In late 2016, U.S. Customs issued an unusual letter to a select group of 1000 U.S. importers containing numerous compliance publications and detailing facts about the importers’ highest-valued goods. The letter asks for the importers to review CBP’s laws and regulations, and to either assure compliance or disclose in advance any errors identified. It also asks that a receipt copy of the letter be returned. According to the CBP itself, the letter informally represents a warning that the importers are an audit target. The return of the letter, as Customs requests, provides proof of notice. Many importers are currently grappling with the decision to concede actual notice and ensure that they are in full compliance, or to decline to return and require such proof of notice from Customs in the event a deficiency in duty payments is later discovered.

Disclaimer: The article below appeared in the Fall, 2016 edition of The Beacon, the journal of the Maritime Exchange for the Delaware River and Bay, and is reprinted with permission.

For more information on this topic please click here to read the issued Client Alert.

Substantial Change to Come For Anti-Corruption Law in France

French parliamentarians are considering landmark anti-corruption laws that would be a considerable breakthrough for those in the fight against corruption. The French Constitutional Council must vote on the legislation within one month, and even if it is ruled invalid there are steps to be taken to keep the legislation alive.

Some of the changes include a French anti-corruption Agency headed by a Magistrate, new law forcing French companies to implement a compliance program, and a National registry of lobbyists. The new legislation also seeks to protect whistleblowers and for sanctions to remain unchanged. For more information on this topic please click here to read the issued Client Alert.

U.S. Supreme Court Tips the Scales in Favor of Prosecutors in Insider Trading Cases

On December 6, 2016, the U.S. Supreme Court issued its long-awaited ruling in Salman v. United States. In a unanimous opinion, the Supreme Court adhered to its 1983 decision in Dirks v. SEC, 463 U.S. 646, and held that a tippee is liable for trading on inside information when the tipper “personally will benefit directly, or indirectly, from his disclosure.” The Supreme Court in Salman agreed with the Ninth Circuit’s interpretation of Dirks, holding that the tipper “personally benefitted from making a gift of confidential information to a trading relative.” In such a situation, the Court found a tipper benefits personally because his gift of trading information to a relative or friend is equivalent to if he traded on the information himself and gifted the proceeds. This ruling will likely serve to increase federal insider trading prosecutions, specifically where the insider has not received a tangible monetary or pecuniary benefit as a quid pro quo for sharing inside information with a friend or relative.

Salmon addressed the circuit split that has been plaguing insider trading jurisprudence since the Second Circuit’s 2014 ruling in United States v. Newman, 773 F.3d 438, which we wrote about here. Specifically, the Salman Court rejected as inconsistent with Dirks the Second Circuit’s finding that liability depends upon the tipper having received something of a “pecuniary or similarly valuable nature” in exchange for a gift to a trading relative; however, the Salman decision did not implicate the portion of the Newman opinion requiring evidence of the tippee’s knowledge that the information on which they traded “came from insiders or insiders received a personal benefit in exchange for the tips.”

The Salman decision walks back some of the significant advantages that the Second Circuit’s Newman opinion conferred on insider trading defendants. By reasserting its decision in Dirks that a jury may infer that a tipper personally benefits from providing a gift of non-public information to a trading relative, the Court has lifted the burden on prosecutors to prove that a tipper has received a tangible pecuniary benefit in exchange for relaying confidential information. This will likely have a significant effect on insider trading defenses for all tippees where there is no obvious or tangible pecuniary gain to the tipper.

North Korea Facing New Wave of International Trade Sanctions

As a direct result of nuclear and ballistic weapons tests conducted by the Democratic Peoples’ Republic of North Korea earlier this year, the United Nations, the European Union and the United States imposed increased sanctions against the country.  These new restrictions affect various industries, including minerals, energy, shipping, banking, finance, and aviation.

In keeping with Reed Smith’s continued efforts to keep clients abreast of the latest global developments in sanctions enforcement, the firm recently issued a client alert that details the various actions taken against North Korea.  For more information on this topic, and an understanding of how your business may be affected, please click here.

Acquisition of Some Non-TAA-Compliant Drugs to be Permitted by Veterans Affairs

The Department of Veterans Affairs recently announced that it will now require all covered drugs under the Veterans Health Care Act to be offered on Federal Supply Schedule contracts, regardless of whether they meet the “country of origin” standards of the Trade Agreements Act. This decision represents a major reversal in policy for the VA.  The policy is being implemented immediately, requiring action for many companies as soon as April 26, 2016.  For the first time, FSS contracts will now be open to hundreds of pharmaceutical products that are manufactured in non-TAA designated countries.

For more information on this topic, please click here.

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