Not every investment firm countersues the acting assistant attorney general of the United States for the Antitrust Division, the United States Department of Justice (Antitrust Division), the Federal Trade Commission (FTC), and the United States of America (together, the Defendants) when the government comes knocking on their door. KKR & Co. GP LLC (KKR GP) did. On January 14, 2025, KKR GP filed a complaint with the United States District Court for the District of Columbia, alleging the Defendants impose “strict liability for alleged non-compliance with a confusing and at times contradictory web of rules and requirements.” KKR GP called out political leaders and their hostility toward private equity, with the sole purpose of making an example of KKR & Co. Inc. (KKR) and thereby chilling M&A activity.
Allegations of HSR Act Violations
KKR GP’s complaint is in response to the Antitrust Division’s complaint against KKR and certain of its affiliates for violating the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act), and its associated regulations. KKR GP counters that the violations, if any, were not willful and the government complaint is politically motivated, and that the government interpretations of the HSR Act are unconstitutionally vague. The Antitrust Division’s complaint alleges KKR and its executives systematically flouted the requirements of the HSR Act, claiming KKR should have submitted more than 100 premerger filings under the HSR Act since 2021 and failed to submit at least 16 such premerger filings in 2021 and 2022. The Antitrust Division also alleges failures by outside counsel, but no such outside counsel was a named defendant. Interestingly, the government typically limits post-transaction HSR challenges to matters with accompanying Section 7 competition concerns; but here, even if there are no competition issues, the government is scrutinizing form over substance.
The government’s complaint alleges three types of violations:
- Certification of HSR compliance, but exclusion of potentially required Item 4 documents in at least 10 filings
- Alleged alteration of Item 4 documentation in eight filings
- Procedural gun jumping (or failure to file) in at least two transactions (see our alert regarding gun jumping)
The HSR Act authorizes the FTC, with concurrence from the Antitrust Division, to promulgate rules requiring that the premerger filing notification “be in such form and contain such documentary material and information relevant to a proposed acquisition as is necessary and appropriate” to determine whether such acquisition, if consummated, may violate the antitrust laws. 15 U.S.C. § 18a(d)(1). The penalty for violating the HSR Act is $53,088 per day per violation, as of January 17, 2025 (previously $51,744). In this instance, the maximum statutory penalty is currently anticipated to exceed $650 million. See our alert regarding 2025 updates to the merger filing thresholds, filing fees, and interlocking directorate exemptions.
Are HSR Filing Rules Unclear and Contradictory?
The instructions for the HSR Form, contained in the appendix to 16 C.F.R. Part 803, require that several business documents and the purchase agreement be submitted in connection with the form.
The instructions from the FTC and Antitrust Division are as follows:
- Parties to a transaction must carefully determine whether a filing is necessary where the thresholds and guidance are not clear cut.
- Such parties must produce all responsive documents under Item 4(c) and Item 4(d).
- Such parties should not alter producible documents in an attempt to avoid disclosure.
Yet the HSR process is not as clear-cut as these instructions suggest or as the FTC and Antitrust Division wish. Determining whether a transaction is reportable, discerning what may qualify as Item 4(c) and Item 4(d) documents, and properly enforcing privilege (or otherwise properly withholding certain information as unrelated) require finesse, and even frequent buyers and sellers like KKR are susceptible to government allegations related to the HSR filing process.
KKR GP, in its complaint, states that even the FTC, which has a specialized staff dedicated to administering the rules, has acknowledged that “responding to Item 4(c) can be confusing for filers because the item’s broad language is subject to a range of interpretations.” KKR GP then suggests that the FTC’s database of its interpretations is “not actively monitored for consistency, changes in the statute or regulations, or evolving [FTC] views,” and “one can find letters that relate to regulations that have since been repealed or modified and letters referring to positions taken by the [FTC] that have subsequently been disavowed.”
Takeaways
Frequent HSR filers, especially global investment firms and private equity companies, should monitor these suits for judicial clarity on the HSR rules. Although the new HSR rules became effective on February 10, 2025, many of the same instruction elements appear in expanded form in the new rules, which could mean any clarification equally applies to filings made under the new rule.
For more information, please contact Robin Crauthers, Jacob Shulman, or the McCarter & English lawyer with whom you normally work.