On January 14, among the flurry of last-minute lawsuits filed by the Biden administration, the US Department of Justice (DOJ) sued Kohlberg Kravis Roberts & Co. (KKR), a global investment firm, and several of its investment advisors and funds for violations of the Hart-Scott-Rodino (HSR) Act. The HSR Act requires parties to mergers and acquisitions over a certain size to report the transaction to the DOJ and Federal Trade Commission (FTC) and to wait for the agencies to review the transaction.1 As part of this notification, parties submit a form detailing the transaction along with documents that analyze the market and potential synergies from the deal. These documents are commonly referred to as "4(c)/(d)" documents after corresponding sections on the form. If the agencies determine that the proposed transaction requires additional review, they can issue a "second request," a lengthy process that usually involves extensive document production and investigation.
Here, the DOJ alleges that KKR has "systematically" failed to comply with HSR requirements at least 16 times in 2021 and 2022 due to alleged deficiencies on multiple fronts. First, the complaint alleges that in at least 10 transactions, KKR failed to turn over relevant 4(c)/(d) documents. As 4(c)/(d) documents serve as one of the bases for the agencies to understand the state of competition in the relevant market and the expected effect of the transaction, a failure to turn over a complete set of documents could mean that the agencies miss information that might signal a competition problem. Second, the complaint alleges that for at least eight transactions, KKR altered 4(c)/(d) documents before submitting them to remove information about the competitive implications of the proposed transaction. Third, the complaint alleges that KKR failed to report at all at least two transactions for which filings were required before consummating the transactions. In a sign of how serious the DOJ views the alleged violations, it highlighted in a press release that the maximum penalty is over $650 million, a sum that would dwarf any previous fine for noncompliance with the HSR Act.
KKR immediately filed a countersuit denying that the allegations were intentional and asserting that the lawsuit was politically motivated. The KKR complaint cites the FTC's own acknowledgements that the HSR process can be "confusing for filers" and that there may be "[c]onflicts, or apparent conflicts" in the informal guidance that the FTC has published over the years. It also points out that the Biden DOJ had spoken derogatorily about private equity firms and this suit was filed in the waning days of the administration as a final shot at the private equity model. Further, the KKR complaint points out that none of the transactions for which it was alleged to have violated the HSR Act have been subsequently challenged. Finally, KKR challenges the DOJ's calculation of the fine, which the DOJ claims is $51,744 per day for "fail[ing] to comply with any provision" of the Act, arguing that the methodology is unbounded and creates a limitless statutory penalty that is unconstitutional.
Regardless of the outcome of the lawsuits, the DOJ's messaging is clear: merging parties must carefully ensure filing when the thresholds are exceeded, must produce all responsive 4(c)/(d) documents, and cannot alter 4(c)/4(d) documents that are otherwise required to be filed. And those allegations, along with the KKR's counter-complaint, underscore the complexity of the HSR process. Although completing a form and gathering documents to comply with the Act may appear simple, the complexities of modern transactions mean that it can often be difficult to determine whether a transaction is reportable, which documents qualify as 4(c)/(d) documents, and what, if any, information can be properly withheld from the government as unrelated to the transaction or privileged. The FTC's informal guidance process can be helpful sometimes, but as it repeatedly states, it is neither authoritative nor binding on the agencies.
On February 10, the HSR filing requirements are scheduled to change dramatically as filers will be required to submit more information on a broader range of subjects, which will come with additional risk of error or omission.2 The government's lawsuit is a reminder that it believes that the integrity of the HSR process is important and that companies involved in mergers and acquisitions should have robust procedures in place for identifying, collecting, reviewing, and producing to the government all documents required under the HSR rules.
Footnotes
1. See here for the 2025 thresholds for reporting transactions.
2. The new HSR rules are scheduled to go into effect on February 10, although it is possible that that the new Trump administration will seek to delay or alter them. Indeed, on January 22, the PNO added a note to its website: "The PNO will post any updates on the HSR Form Change rulemaking as soon as we have them. Please continue to watch this page for developments. (01/22/25)." For more information on the new HSR rules, please visit our previous blog posts: Final HSR Rule Announced: New Requirements and Elevated Compliance Standards for Merger Filings and Trump 2.0: Potential Shifts and Key Considerations in US Antitrust Policy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
