Securities Trader to Pay $350,000 for Failing to File as Required by HSR Act
A Connecticut-based hedge fund manager who failed to report several large stock purchases before they were made, as required by the Hart-Scott-Rodino (HSR) Premerger Notification Act, will pay a $350,000 civil penalty to settle Federal Trade Commission charges, the agency announced today.
According to the complaint filed today in federal district court by the United States Department of Justice (DOJ) at the request of the Commission, Scott Sacane, manager of the Durus Life Sciences Master Fund, failed to make four required premerger notification filings. His failure to do so violated the HSR Act for each transaction.
“This significant penalty should put hedge funds, their managers, and securities traders on notice that they are not exempt from filing pre-merger notification forms when required to do so,” said Susan Creighton, Director of the FTC’s Bureau of Competition. “The defendant in this case is an experienced fund manager who should have known and fulfilled his obligations under the HSR Act.” She noted that while the Commission took action only against the individual fund manager in this case, future enforcement actions in other cases resulting from a failure to file could be brought against a fund as well.
The Durus Life Sciences Fund
In 1999, Sacane created what is commonly referred to as a hedge fund, which was composed of the Durus Life Sciences Master Fund Ltd. and a domestic and an international feeder fund. In transactions made between February 2003 and June 2003, Sacane acquired more than 50 percent of Aksys Ltd. (Aksys) on behalf of the master fund, crossing two HSR pre-merger filing thresholds. During the same period, Sacane bought more than $100 million of stock in Esperion Therapeutics, Inc., (Esperion) on behalf of the master fund, also crossing two HSR thresholds. No premerger filings were made prior to crossing any of the four thresholds.
The complaint charged that in not filing each of the four HSR premerger notifications, Sacane failed to comply with the waiting period requirements related to the acquisitions of Aksys and Esperion shares. The shares were acquired on behalf of the master fund. Because of the fund’s structure, under the HSR Act, both the managing entity of the master fund and the domestic feeder fund were required to make filings. As the parent of the managing entity, Sacane was required to file premerger filings on his own behalf, but he failed to do so. Based on its determination of the culpability of the parties in this case, the Commission recommended seeking penalties only against Sacane. In settling the complaint, Sacane has agreed to pay a civil penalty of $350,000.
The FTC notes that since the time of Sacane’s alleged violations, the HSR pre-merger filing threshold has increased to $53 million from $50 million, and several other changes to the Act have been put in place. More information about the filing requirements of the Act can be found at the following Web site: http://www.ftc.gov/bc/hsr/introguides/introguides.htm. The premerger forms can be found at: http://www.ftc.gov/bc/hsr/hsrform.htm.
The Commission vote to accept the complaint seeking civil penalties and consent in settlement of the court action was 4-0. The Complaint, Stipulation and Final Judgment were filed in the U.S. District Court for the District of Columbia on September 26, 2005, by FTC attorneys acting as special attorneys for the United States Attorney General.
NOTE: Stipulated final orders are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Stipulated final orders have the force of law when signed by the judge.
Copies of the complaint and consent in settlement of the court action are available on the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: email@example.com; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
(FTC File No. 041-0068)
(Case No. 1:05CV01897)
Mitchell J. Katz
Office of Public Affairs
Roberta S. Baruch
Bureau of Competition