January 24, 2025

Less Is More? Implications of the DOJ's $650 million Action Against KKR & Co.

A Look at How Future Disclosures Under the Hart-Scott-Rodino Act Could Be Affected
Holland & Knight Antitrust Blog
Justin Michael Kadoura | David C. Kully | Bill Katz | Kenneth Racowski
Antitrust Blog

The U.S. Department of Justice (DOJ) on Jan. 14, 2025, brought an action in the U.S. District Court for the Southern District of New York against private equity firm KKR & Co. Inc alleging that KKR violated the initial disclosure requirements of the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) and seeking more than $650 million in civil penalties. The DOJ's action represents the largest civil penalty ever it has ever sought in an HSR Act case and raises important considerations for companies engaging in transactions subject to the HSR Act. KKR, in its own countersuit against the DOJ in the U.S. District Court for the District of Columbia, asserts that the DOJ's case has "no legitimate basis" and amounts to "weaponiz[ing]" confusing guidance concerning the HSR Act by seeking to impose "draconian and grossly disproportionate penalties" on KKR based on "paperwork errors that were immaterial" to the antitrust review of KKR's transactions.

The HSR Act

The HSR Act was passed in 1976 to enable the government to scrutinize mergers and acquisitions (M&A) above a certain monetary threshold before the deals closed. For deals subject to the HSR Act's reporting requirement, the Act and the Federal Trade Commission's (FTC) regulations purportedly issued pursuant to the Act require the companies to provide the FTC and DOJ certain information about the deal and then wait to close for at least 30 days. Before the expiration of the 30-day "waiting period," the government then has the ability to issue a "Second Request" for additional information to scrutinize the deal further if either agency believes that the transaction might substantially lessen competition and violate Section 7 of the Clayton Act. To ensure that merging parties comply with its requirements, the HSR Act allows the government to bring a civil action for noncompliance and seek "a civil penalty of not more than $10,000 [adjusted for inflation] for each day during which such person is in violation of this section."

The DOJ's Action and KKR's Countersuit

In its complaint, the DOJ alleges that KKR violated the HSR Act's initial disclosure requirements in connection with 16 now-closed M&A in 2021 and 2022. Specifically, the DOJ alleges that "KKR failed to include required business documents such as those that assessed competition in markets impacted by the deal"; "[i]n at least one instance, KKR failed to correct a deficient filing to include documents that its outside counsel had in their possession, even after its outside counsel relayed the Antitrust Division's inquiries about potentially omitted documents"; and "KKR's executives and employees ordered or made alterations to the business documents filed including in some instances information about the competitive implications of the proposed transaction." The DOJ accuses KKR of having "a culture of noncompliance with the Act" and "systematically flout[ing]" its requirements, with one KKR employee allegedly saying that "less is more" in the context of initial HSR disclosures. The DOJ is seeking statutory penalties of $51,744 per day for each violation (representing the inflation-adjusted $10,000 statutory penalty), now totaling more than $650 million and increasing by the day.

On the same day, KKR filed a countersuit against the DOJ in the U.S. District Court for the District of Columbia alleging that it did not violate the HSR Act and that it is being targeted by the DOJ only because of the Biden Administration's hostility to private equity firms. KKR alleges that the HSR Act "does not require the submission of all relevant documents" and "is not the government's primary tool to investigate mergers" because "the HSR filing is merely intended to alert the government to the transaction, and to provide enough basic information to allow the government to conduct a preliminary investigation to determine whether a more comprehensive investigation is warranted." As KKR alleges in its complaint, the DOJ's primary method for investigating deals is through Second Requests, which allow the government to engage in a more fulsome analysis of the deal's potential effects on competition. (The DOJ, as with the FTC, has the ability to bring actions after the fact to challenge deals that violate the Clayton Act.) KKR alleges that the errors in its HSR filings were "immaterial slips" and that it "substantially complied" with the HSR Act's disclosure requirements, which the FTC has stated are "confusing" and "subject to a range of interpretations."

KKR also alleges that the penalties sought by the DOJ are unconstitutional and unprecedented: Although the government has also sought civil penalties for violations of the HSR Act in connection with closed deals, those actions did not involve such significant civil penalties as the DOJ's action against KKR based on violations of the HSR Act's first-level disclosure requirements without evidence of intentional noncompliance or evidence of anti-competitive effects. According to KKR, "[o]ver the course of nearly three years, [the DOJ's investigation] has involved exacting scrutiny of numerous transactions involving HSR filings made in 2021 and 2022. And yet, in the wake of that sweeping inquiry, all the Antitrust Division has to show are claims of paperwork filing mistakes" that did not "interfere[] with the government's antitrust review." KKR also noted that the DOJ "did not issue Second Requests for the overwhelming majority of" the deals at issue and has not sought to unwind any of them.

Important Takeaways

The DOJ's action against KKR raises the possibility that, if the DOJ's aggressive enforcement stance is carried forward by the Trump Administration, even well-meaning companies involved in frequent M&A activity could face significant monetary penalties resulting from after-the-fact government scrutiny of closed deals. That risk has important implications for companies engaging in transactions subject to the HSR Act.

First, the government might target transactions that raise no prospect of actually harming competition – ones that companies would expect would receive no substantive investigation by the antitrust agencies. After-the-fact scrutiny in the past has usually been limited to whether a consummated transaction resulted in harm to competition and, thus, potentially violated Section 7 of the Clayton Act. By contrast, in its action against KKR, the DOJ did not limit its retrospective review only to transactions involving competitive overlaps or potential harm to competition. The DOJ only alleges that two of the 16 KKR transactions at issue were "potentially" anti-competitive. The DOJ made it clear that it intended its suit against KKR as a reminder that HSR requirements apply regardless of whether a transaction has any prospect of raising substantive antitrust concerns. As the DOJ stated, "[p]arties to transactions covered by the HSR Act must abide by its requirements regardless of whether the transaction, if consummated, would be unlawful." In this sense, the KKR lawsuit parallels other recent "gun jumping" enforcement actions, including the DOJ's August 2024 announcement of a $3.5 million settlement with Legends Hospitality Parent Holdings LLC for exercising control over a target company before the HSR Act's 30-day waiting period expired – also not premised on evidence of anti-competitive effects.

Second, every procedural oversight or "immaterial slip[]," as KKR characterized the DOJ's alleged violations, could potentially subject future HSR filers to fines. Although the DOJ alleges that KKR "systematically flouted the requirements of the HSR Act," nothing in the DOJ's complaint suggests that it believes that it is required to prove "systemic" or even intentional omissions from initial HSR filings before seeking civil penalties. Rather, the DOJ's action contemplates strict liability to the tune of $51,744 per day for each and every instance of noncompliance.

Third, as evidenced by KKR's allegation that its conduct was lawful, the HSR Act's disclosure requirements are often less than perfectly clear – posing a challenge even for parties committed to thorough compliance with those requirements. KKR explains that the errors the DOJ alleges "were, on their face, immaterial, based on good-faith interpretations of what the FTC acknowledges are the HSR Act's 'confusing' requirements." Although the use of counsel experienced in the complex and often-ambiguous requirements of the HSR Act could not deter "punitive[]" application of the HSR Act to "immaterial slips" in this instance, it still remains essential that companies hire experienced counsel when preparing HSR filings – particularly if the FTC's new and expanded disclosure requirements are eventually implemented. The new rules were set to go into effect in February 2025 but appear to have been delayed by executive order and are also being challenged in a recent lawsuit by the U.S. Chamber of Commerce.

Finally, coming on the heels of the Biden Administration, which had been accused adopting a posture of hostility to M&A, companies should keep in mind that they will not always know when filings might be scrutinized and whether those reviewers share the Biden-era antitrust enforcers' philosophy. Though the expectation is that the Trump Administration's antitrust agencies are unlikely to adopt the same anti-merger stance, transactions subject to HSR reporting requirements and completed in the next four years could still face scrutiny in the next administration. Companies making HSR Act disclosures should be thorough in preparation of those disclosures and make no assumptions about the leniency of the antitrust enforcers who might ultimately scrutinize the filing.

Conclusion

The DOJ's action against KKR is a stark reminder that companies should take their HSR Act obligations seriously. Although the content of a company's HSR disclosures will depend on the specific circumstances surrounding each deal, less may not always be more.

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