DOJ Issues a $250 Million Reminder About HSR Compliance in M&A Transactions

The Department of Justice’s recent settlement with KKR serves as a reminder that preparing and submitting pre-merger notification filings pursuant to the Hart-Scott-Rodino (HSR) Act may not be the most exciting part of an M&A deal, but it can be among the most consequential. According to the government’s allegations, KKR engaged in a series of HSR compliance failures across at least 16 transactions, including omitted documents, altered documents, and, in some instances, a failure to make required filings altogether. The matter ultimately resulted in a proposed $250 million civil penalty, reported to be the largest HSR penalty ever imposed.

For dealmakers, the key takeaway is simple: Parties must take HSR compliance seriously. The HSR review process depends on accurate, complete, and timely submissions, including the production of required transaction-related documents and certifications regarding the completeness of the filing. The government’s complaint emphasizes that deficiencies in HSR filings can undermine the agencies’ ability to evaluate transactions before closing and may expose companies to significant enforcement risk even if the underlying transaction is not alleged to violate the antitrust laws.

Treat HSR compliance as a substantive workstream, not a paperwork exercise.

Companies should work with HSR counsel early to identify potentially responsive documents, preserve records, and ensure that certification decisions are informed by a thorough review. Whether a transaction triggers an HSR filing, whether a transaction is likely to be subjected to a lengthy antitrust review are two different and independent questions. Unlike some other jurisdictions, the Federal Trade Commission, the Antitrust Division of the U.S. Department of Justice, and state attorneys general may investigate and challenge transactions under substantive federal and/or state antitrust laws even if the transaction does not meet the current HSR filing thresholds. Conversely, the analysis of whether a filing is required for any given transaction is based on certain size of transaction and size of person thresholds. If those thresholds are met and no exemption applies, the HSR Act mandates a filing. A lack of substantive overlaps or other potential antitrust issues in a deal does not exempt a transaction from filing.

Engage experienced HSR counsel early.

Determining whether an HSR filing is required, identifying responsive materials, and navigating the filing process often involve nuanced judgments. Experienced HSR counsel can help companies develop defensible collection protocols, conduct appropriate reviews, and avoid mistakes that may later attract agency scrutiny. HSR analysis and filing preparation should start early—ideally before any definitive agreements are signed.

Appreciate the full scope of the risk.

HSR violations can carry substantial costs beyond the filing fee associated with the filing itself. The HSR Act authorizes significant daily civil penalties for noncompliance. The current civil penalty amount is $53,088 per violation, per day. This civil penalty amount is adjusted for inflation in January of each year. Civil penalties can add up quickly, especially if there are multiple violations whose penalties are being calculated simultaneously.

Just as importantly, HSR enforcement actions can create reputational risk. Public allegations that a company omitted documents, altered materials, or failed to satisfy filing obligations can attract significant scrutiny from other regulators, investors, counterparties, and the business community.

HSR compliance may be one item in a seemingly endless pre-closing checklist for M&A transactions, but the DOJ’s most recent HSR compliance enforcement action illustrates its importance. Companies pursuing mergers, acquisitions, investments, or other reportable transactions should carefully evaluate filing obligations, engage experienced HSR counsel, and dedicate sufficient resources to ensuring complete and accurate filings. The alternative can be costly, both financially and reputationally.