Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) will have to pay $896,000 for its failure to notify the regulators ahead of its decision to change its convertible notes into 28% of voting securities in USG Corporation (NYSE:USG) last December, reports Maria Armental for The Wall Street Journal. The Department of Justice lodged a complaint with the US District Court in Washington D.C. saying that Berkshire Hathaway had failed to notify both the DOJ and the Federal Trade Commission as required under the Hart-Scott-Rodino Antitrust Act.
Berkshire Hathaway is large enough that it must be familiar with Antitrust law
The Hart-Scott-Rodino Act sets up a somewhat complicated standard using both ‘size of parties’ and ‘size of transaction’ tests to determine if regulators should be notified ahead of the deal in case it might have some anti-competitive effect on the market. But Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is much larger than the ‘size of parties’ test, and at about $950 million its stake in USG Corporation (NYSE:USG) is an order of magnitude larger than the size of transactions test, so it should have been clear that a notification was required.
It’s surprising that Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) would make this error, because it must run into the regulation relatively often. Basically anytime its holdings in a given company pass $272.8 million (the figure is increased periodically), it has to file. Considering the size of Berkshire Hathaway’s portfolio and Buffett’s preference for taking large positions in high quality companies and then owning them for a long time, you would expect their compliance team to be on top of this.
Berkshire made a similar mistake last year
But Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) apparently made the same mistake last year when it failed to notify authorities when it increased its stake in Symetra Financial Corporation (NYSE:SYA) to $310 million in June 2013, which Berkshire later said was inadvertent.
No doubt the USG Corp incident was an honest mistake as well, but it’s still interesting that the requirement that companies wait 15 – 30 days before completing a deal, depending on the terms, could be incentive enough for someone to simply press on. If you would rather make a $1 billion dollar trade today rather than next month, the prospect of a $1 million fine might not be enough to hold you back.