Category — Government Investigations

What follows is part one of a two-part post from Akin Gump’s antitrust practice.

For more information on this alert, please contact—

• Mark Botti, 202.887.4202, Washington, DC
• Anthony Swisher, 202.887.4263, Washington, DC

Introduction and Background

The recent worldwide financial turmoil and the still-uncertain aftermath of the Emergency Economic Stabilization Act of 2008 have sparked major  mergers and acquisitions (M&A) that need very rapid antitrust regulatory approval in order to calm distressed markets and salvage shareholder value.  More such M&A deals are surely coming.  Despite the normal 30-day waiting period under the Hart-Scott-Rodino (HSR) Act, deals can be done much more quickly under the right circumstances.

The HSR Act, Section 7A of the Clayton Act, 15 U.S.C. § 18a. is a “file and wait” statute.  Parties to proposed transactions meeting certain size thresholds must file notification with both the Federal Trade Commission (FTC) and the U.S. Department of Justice, Antitrust Division (DOJ).  They must also observe a mandatory waiting period prior to closing, generally 30 days, but  15 days in the case of a bankruptcy or cash tender offer.  If a transaction raises substantive antitrust issues requiring thorough investigation,, a so-called “Second Request” for information may be issued, typically causing the waiting period to be extended by many months.   Critically, however, the mandatory HSR waiting period can also be shortened through the discretionary grant of an “early termination.”   § 7A(b)(2).

Obtaining “early termination” for large transactions often requires a proactive approach.  Many significant transactions bog down early in the regulatory process as a result of an obscure first step in the agency review process known as “clearance.”  During the clearance stage, the FTC and DOJ decide between them which of the two is going to review the transaction.  Weeks, and in some unfortunate instances, months are sometimes lost during this clearance process, particularly when the agencies dispute which of them is going to review a transaction.  Parties can help the agencies cut through the clearance issues by engaging them actively even prior to making their filing.  Where necessary to move the matter forward rapidly, merging parties make presentations to both agencies rather than wait for clearance.  Most important, companies need to educate antitrust agency staff regarding key issues and communicate specific reasons underlying the need for expeditious review and approval.  Lastly, companies need to develop proactive pre- and post-filing strategies to quickly marshal information for staff, with the goal of securing prompt antitrust clearance.  A sure prescription for delay is simply to file the necessary documents and just sit back while the agencies do their work.

[Read more →]

What should you do if your company receives an inquiry from a governmental or other regulatory organization?

It is critical to consult with outside counsel immediately. Here are a few important guidelines when you receive that initial phone call—

• Tell the regulator that you need to discuss this matter with outside counsel and do not commit the company to any course of action or undertaking requested by the regulatory body, other than a general agreement to cooperate in the inquiry.
• Do not make any employees available for interviews with regulators or investigators-even “informal” telephone interviews-without contacting outside counsel first.
• Do not divulge any potentially privileged information.
• Immediately identify and preserve any and all information that may be possibly related to the subject of the inquiry.
• Do not issue any internal statement within the company regarding the inquiry until speaking with outside counsel. In fact, until you speak with outside counsel, it would be best to limit knowledge of the inquiry within the company to those people who need to know about it.
• Do not issue any public statement regarding the inquiry until speaking with outside counsel.

For further questions, please contact—

• Jim Benjamin, 212.872.8091, New York

In a July 2007 client alert, we reported on an Internal Revenue Service (IRS) effort to investigate the use of derivative transactions by hedge funds and other foreign investors to avoid U.S. withholding tax on U.S. source dividends and certain other types of income. At the time, the scope of the IRS investigation was unclear, but we noted then that it appeared to be focused on so-called “dividend enhancement” trades, such as total return swaps over U.S. publicly traded stock and similar derivatives. In addition, we noted that it remains to be seen whether the investigation would lead to tax audits of foreign funds that entered into tax-advantaged derivative transactions.

The attack on these types of transactions seems to be intensifying. On September 11, 2008, the U.S. Senate Permanent Subcommittee on Investigations, a subcommittee of the Committee on Homeland Security and Governmental Affairs, held a hearing on the transactions; in advance of the hearing, the subcommittee released a staff report entitled “Dividend Tax Abuse: How Offshore Entities Dodge Taxes on U.S. Stock Dividends.” The report and hearing were the subject of numerous high-profile news articles, including articles in the Wall Street Journal and New York Times. A number of speakers, including IRS Commissioner Douglas Shulman, Professor Reuven S. Avi-Yonah and executives of certain financial institutions and investment funds, testified at the hearing.

See the full alert here.

If you have questions regarding this alert, please contact—

• Patrick B. Fenn, 212.872.1040, New York
• Stuart E. Leblang, 212.872.1017, New York
• Robert Rothman, 212.872.7411, New York
• Peter J. Guy, 212.872.1024, New York
• Stephen M. Vine, 212.872.1030, New York
• Prakash H. Mehta, 202.887.4248, Washington, D.C.
• Mark H. Barth, 212.872.1065, New York