One does not usually associate the possibility of criminal penalties with the Hart-Scott-Rodino Act premerger review process. However, on May 3, 2012, the U.S. Department of Justice ("DOJ") announced that an executive of a South Korean company agreed to plead guilty to obstruction of justice charges and to serve five months in prison for altering documents filed with the DOJ and the Federal Trade Commission ("FTC") in connection with a proposed merger.
This plea agreement is the latest development in a civil merger investigation initiated by the Antitrust Division of the DOJ of the proposed acquisition by automated teller machine maker Nautilus Hyosung Holdings Inc. ("NHI") of a competing manufacturer of ATM systems, Triton Systems of Delaware Inc., in 2008. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR"), as amended, requires companies contemplating mergers and acquisitions valued above certain thresholds to make premerger filings with the DOJ and the FTC. The federal antitrust agencies have authority to investigate and challenge the proposed transactions under Section 7 of the Clayton Act, if the transactions may substantially lessen competition. Before the Antitrust Division reached a decision regarding whether to challenge the transaction, the parties abandoned it.
In the two-count felony charge, the DOJ stated that Kyoungwon Pyo, in his role as senior vice president for corporate strategy of Hyosung Corporation, an affiliate of NHI, altered and directed subordinates to alter numerous corporate documents before they were submitted to the DOJ and the FTC in conjunction with the premerger HSR filings. The DOJ further alleged that, after the Antitrust Division opened a civil investigation of the proposed acquisition, Pyo falsified additional documents in response to a document request with the intention of impairing their integrity and availability for use in an official proceeding. According to the DOJ "the alterations misrepresented and minimized the competitive impact of the proposed acquisition."
On October 20, 2011, after voluntarily disclosing that numerous documents had been altered before being submitted to the government and agreeing to cooperate in the ongoing investigation, NHI pleaded guilty to two counts of obstruction of justice and paid a $200,000 criminal fine for its role in the document tampering. Following his employer, Pyo has agreed to plead guilty and to serve five months in prison for his conduct in a plea agreement which is subject to court approval. Pyo is charged with obstruction of justice, which carries a maximum penalty of 20 years in prison and a criminal fine of $250,000 for individuals.
This case marks the first time obstruction of justice charges have followed a civil merger investigation. The DOJ release is available at: http://www.justice.gov/atr/public/press_releases/2012/282873.htm
For more information on the applicable HSR thresholds please consult: http://www.antitrustlawblog.com/2012/01/articles/article/higher-filing-thresholds-for-hsr-act-premerger-notifications-and-interlocking-directorates-announced/