Settlement Marks First Case of Individual Liability for Improper Certification of HSR Filing
A New York merchant banking fund and one of its general partners have agreed to pay nearly $3 million to settle federal charges that they failed to file documents with the antitrust enforcement agencies in a timely manner before making an acquisition of a chain of funeral homes. At least one of those documents would have alerted the agencies to potential antitrust violations raised by the acquisition. The filings were required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR), which is designed to give the government an opportunity to review certain acquisitions and mergers before consummation to determine whether they would violate federal antitrust laws. When the filing was made, Howard A. Lipson, general partner of Blackstone Capital Partners II Merchant Banking Fund L.P., certified that the filing was, "to the best of [his] knowledge, true, correct and complete." According to the government's complaint, Lipson "knew, or should have known," that his certification of the June 28, 1996 premerger filing was inaccurate. Lipson will pay $50,000 in civil penalties under the terms of the settlement. Blackstone will pay $2.785 million, which is the maximum civil penalty provided under the HSR Act.
"The HSR Act is intended to protect competition and consumers by giving the government advance notice of major acquisitions," said William J. Baer, Director of the Federal Trade Commission's Bureau of Competition. "Here, the company and the official responsible for complying with the Act failed to give the antitrust agencies the information we need to do our job. We expect timely disclosure and full compliance with HSR requirements and in appropriate cases will seek significant penalties where it is lacking."
The allegations stem from the August 26, 1996, leveraged buyout of Prime Succession, Inc. of Batesville, Indiana by Blackstone and the Loewen Group International, Inc., from Chicago-based Golder, Thoma, Cressey Fund III Limited Partnership. The June 14, 1996, purchase agreement called for three Blackstone partnerships to pay a total of $52 million for 76 percent of Prime's voting securities and stipulated that the Blackstone partnerships would sell their interest in Prime to Loewen in the future. Under the terms of the purchase agreement, Golder would have had the option to terminate the deal if Blackstone and Loewen had not met certain time deadlines for obtaining approval from federal antitrust enforcers and consummating the acquisition.
The Hart-Scott-Rodino Act required that Blackstone file premerger notification and report forms with the FTC and the Department of Justice, and observe a waiting period while one of the agencies reviewed the merger to assure that it did not violate the antitrust laws. According to the complaint, on July 28, 1996, Blackstone filed a Notification and Report Form with the agencies. One item on the form required that Blackstone submit "all studies, surveys, analyses and reports" prepared by or for analyzing or evaluating "the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets. . ." Blackstone failed to submit all such documents, including a memorandum that was prepared for the Blackstone Investment Committee and that "was one of the most central documents in defendant Blackstone's possession relating to its acquisition of an interest in Prime," according to the complaint. The document identified Loewen as an operator of cemeteries and funeral homes and Prime as a competitor, but the premerger filing did not reveal that fact. "Neither the Federal Trade Commission nor the Department of Justice ascertained that Loewen's acquisition of an interest in Prime was an acquisition between competitors, and, therefore, that the acquisition raised potential antitrust concerns," the complaint says. As a result, the federal antitrust agencies granted Blackstone early termination of the 30-day waiting period for its acquisition.
The FTC discovered the omitted document in October 1996, when Loewen submitted Notification and Report Forms in conjunction with another transaction. The FTC requested an explanation of why the document had not been provided by Blackstone in June. Blackstone amended its June 28, 1996 filing on May 13, 1997, and submitted the missing document.
This is the first time HSR penalties have been imposed on a company official in addition to the company itself. The government's decision to seek a $50,000 civil penalty from Lipson individually was based on a number of facts indicating that Mr. Lipson, as the certifier of Blackstone's premerger filing, lacked a foundation for his statement that the filing was "true, correct and complete," as required by the rules governing preparation of premerger filings. The complaint alleges that Mr. Lipson was the executive at Blackstone with primary responsibility for negotiating the transaction in which Loewen and Blackstone acquired Prime. Mr. Lipson knew that the transaction might draw the attention of the antitrust agencies, and he also knew that any significant delay to the transaction might jeopardize its consummation. Mr. Lipson was an author of the memorandum to Blackstone's Investment Committee and he knew the memorandum contained detailed information concerning competition in the funeral homes and cemeteries markets. Mr. Lipson had a copy of the memorandum in his own files, and he knew of its importance to the decision-making at Blackstone. Further, the explanations he provided to the FTC's staff about the failure to submit the Investment Committee Memorandum with Blackstone's filing were inconsistent. According to the FTC's Baer, "Given all those circumstances, the agencies concluded that Mr. Lipson 'knew or should have known' that the filing was inaccurate. Accordingly, it is appropriate that Mr. Lipson pay a penalty for what was at a minimum his reckless disregard for his obligations under the HSR Act."
The agencies charged that Blackstone and Lipson were in violation of the HSR Act from August 26, 1996, to May 13, 1997, when the filing was amended.
The Loewen Group Inc., headquartered in Burnaby, British Columbia, Canada and its subsidiary, Loewen Group International, Inc., of Covington, Kentucky, agreed to pay $500,000 on March 31, 1998 to settle charges concerning its failure to provide premerger notification for its participation in the acquisition of Prime. (See new release dated March 31, 1998; Civil Action No. 98 0815.)
The complaint, stipulation and final judgement were filed in U.S. District Court for the District of Columbia March 30, 1999, by FTC attorneys acting as special attorneys to the U.S. Attorney General.
NOTE: A stipulated Final Judgment and Order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.
Copies of the complaint and stipulated Final Judgment and Order are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 971 0012)
(Civil Action No. 1:99CV00795)
- Claudia Bourne Farrell
Office of Public Affairs
- Staff Contact:
William J. Baer
Director, Bureau of Competition
Deputy Assistant Director, Bureau of Competition