FTC Obtains $1.4 Million Civil Penalty for Premerger Filing Violations

John C. Malone, CEO and Chairman of Discovery Holding Company, has agreed to pay a $1.4 million civil penalty to settle Federal Trade Commission charges that he violated the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) in connection with acquisitions of Discovery shares in 2005 and 2008. The FTC alleged that Malone failed to file the required notice in 2005 after buying Discovery shares, and then in 2008 purchased additional Discovery shares before the expiration of a waiting period required by the HSR Act.

“The HSR Act and its filing requirements are well-known to companies and individuals making acquisitions. The significant civil penalties imposed here should reinforce the need to fully comply with the Act, including observing the waiting period,” said Marian Bruno, Deputy Director of the FTC’s Bureau of Competition. “Although Mr. Malone may have inadvertently failed to file at the appropriate time for his 2005 purchases of Discovery shares, once he made a corrective filing in June 2008, he was required to observe the waiting period before acquiring any more shares.”

According to the Commission, in May 2005, Malone made a premerger filing with the FTC before acquiring voting securities of Liberty Media Corporation, which at the time was the parent of Discovery Holding. On August 9, 2005, Malone acquired voting securities of Discovery (a different issuer), without making a premerger filing and without observing the required waiting period. He then made additional acquisitions of Discovery voting securities through May 2008.

On June 12, 2008, Malone made a corrective filing under the HSR Act in connection with the 2005 Discovery acquisitions. The complaint alleges that on June 14, 2008, just two days after making the corrective HSR filing and well before the waiting period on the filing had expired, Malone exercised two options to acquire additional Discovery voting securities. According to the complaint, Malone’s failure to observe the waiting period regarding his acquisition of the additional Discovery voting securities violated the HSR Act.

In settling the charges, Malone has agreed to a proposed court order under which he will pay a $1.4 million civil penalty for violating the HSR Act. The penalty must be paid within 30 days of the date the order is entered.

The Commission vote to refer the complaint to the U.S. Department of Justice (DOJ) for filing on the FTC’s behalf was 4-0. It was filed in the U.S. District Court for the District of Columbia on June 23, 2009, by FTC staff acting as deputized agents of the DOJ.

The FTC notes that although informal interpretations of the premerger rules are available on the Commission’s Web site and may provide useful information to filers, it is important that filers confirm whether a particular interpretation reflects the current view of the Premerger Notification Office. Filers can do this by calling the PNO during regular business hours at 202-326-3100.

Copies of the documents related to this matter are available from the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 383, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/bc/edu/pubs/consumer/general/zgen1.shtm.