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Hart-Scott-Rodino Ensnares Private Equity

Martinek Paul J. | November 28, 2006

Private equity firms and similar “financial buyers” might think they can sidestep many compliance and reporting requirements because they are, well, private. Yet obligations do exist—and one of the lesser-known pitfalls is the Hart-Scott-Rodino Antitrust Improvements Act.

The Federal Trade Commission, which enforces HSR, made headlines earlier this fall when it nicked a Connecticut hedge-fund manager at Darus Capital Management for $350,000 for failing to report acquisition of voting securities in two U.S. companies. Such enforcement actions are rare, but it did fire a shot across the bow of financial advisers to pay heed to HSR.

The Hart-Scott-Rodino Act essentially requires investors to report when they have acquired large stakes in companies, either in absolute terms or as a certain percentage of total sales. Most violations—there were 73 corrective filings in 2005—appear to be inadvertent, although such neglect can be costly. The penalty...

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