Executive Agrees to Go to Jail for Submitting Falsified Documents to the Antitrust Agencies During the Merger Review Process
On May 3, 2012, the Antitrust Division of the Department of Justice (“DOJ”) announced that an executive of Hyosung Corporation, an affiliate of Nautilus Hyosung Holdings Inc. (“Nautilus”), agreed to plead guilty and serve five months in prison in the United States for obstruction of justice charges in connection with the antitrust agencies’ merger investigation of its proposed acquisition of U.S.-based Triton Systems. The transaction was abandoned.
Nautilus is a subsidiary of Korea-based Nautilus Hyosong Inc. (“NHI”). On October 20, 2011, NHI, an automated teller machine (“ATM”) manufacturer, agreed to plead guilty and pay a $200,000 criminal fine for submitting false documents to the antitrust agencies. NHI agreed to plead guilty to two counts of obstruction of justice, which carries a maximum criminal fine of $500,000 per count. The DOJ, however, agreed to a lower criminal fine because NHI voluntarily admitted to falsifying documents.
Kyoungwon Pyo, a senior vice president for Hyosung Corporation, allegedly directed employees to alter corporate documents in July and August 2008 before submitting its documents to the Federal Trade Commission (“FTC”) and DOJ as required in its premerger Notification and Report Form. The DOJ investigated the proposed acquisition and subsequently requested additional documents through a second request. Mr. Pyo allegedly falsified additional documents in August and September 2008 that the DOJ claims misrepresented and minimized the competitive impact that the proposed transaction would have on the market for ATMs in the United States.
Mr. Pyo’s actions not only violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), but it also violated criminal laws. The HSR Act requires companies contemplating mergers and transactions that are in excess of $56.7 million to notify the DOJ and the FTC. Here, Mr. Pyo allegedly falsified documents before and after the receiving the formal second request.
The first set of falsified documents involved Item 4(c) of the Notification and Report Form. In filing the Notification and Report Form as required by the HSR Act, arguably the most important documents required for submission are the item 4(c) documents. Item 4(c) requires that studies, surveys, analyses and reports prepared by officers or directors of the company for evaluating or analyzing the proposed transaction be submitted to the government. At the time of this particular HSR filing, Item 4(d) did not exist. Nevertheless, Item 4(d) is also of importance, as this item requires filing of confidential information memoranda, banker’s books, and other third party consultant materials that also relate to the transaction so any intentional misrepresentations of these documents would be equally scrutinized. The second set of falsified documents submitted to the government was in response to the government’s second request. The documents gathered by the antitrust agencies before and after the second request are used to determine if the transaction may result in harm to competition. By falsifying these documents, the merger review process was tainted.
The criminal penalties imposed on the executive and the company for falsifying documents related to the merger review process sends a message to all senior corporate executives that the DOJ will hold executives accountable for any corrupt actions designed to impact the integrity of the merger review process. The harsh monetary penalties against the company and criminal time for its executive, reinforces the importance of providing accurate and complete responses to government requests for information. The antitrust agencies have always taken the companies’ obligations in connection with the merger review process to conduct a reasonable search for and produce responsive documents very seriously. Harsh penalties including a criminal fine and jail time demonstrate that all companies and executives who are preparing the HSR Notification and Report Forms and are preparing responses to government subpoenas, civil investigative demands, and second requests must take the merger review process and conduct investigations seriously.