There’s no doubt that Warren Buffett is one of the most admired investors around the world. But this does not make him and his company, Berkshire Hathaway, exempt from following the rules set forth by the federal Securities and Exchange Commission.
Berkshire Hathaway has agreed to pay $896,000 in order to settle Justice Department accusations that it did not follow antitrust guidelines before purchasing more shares of USG Corporation during December, according to a filing produced by the Federal District Court in Washington this Wednesday.
Underlying the case set forth by the Justice Department against Berkshire Hathaway is the Hart-Scott-Rodino Antitrust Improvements Act. This is a 38-year-old law that ultimately requires investors and companies to notify regulators before carrying out stock purchases or mergers above a certain size.
This is actually one of the most basic parts of any business deal, and acquirers regularly state that they have to wait for HSR approval before going through with their transaction.
Behind the Berkshire Hathaway violation was an older investment in USG, a producer of construction materials, including drywall. Back in 2006, Berkshire Hathaway owned 19% of the outstanding shares of USG. Just a mere two years later, Berkshire Hathaway purchased another $300 million worth of convertible notes. This allowed the company to swap out for common stock at the amount of $11.40 per share.
In 2013, USG redeemed $325 million worth of these convertible notes, and Berkshire Hathaway took advantage of this opportunity by cashing out of its holding, making its overall stake in the company a total of 26%. But, Berkshire Hathaway did not file for HSR before exercising the opportunity to trade in the convertible notes.
After all is said and done, in January, Berkshire filed for HSR approval belatedly, and acknowledged that they were supposed to do so sooner.
This is not the first time that Warren Buffett and company have run afoul of the HSR rules. During the previous summer, it exercised options that gave them the opportunity to buy more shares of Symetra, a company dealing in financial services. One week after the trade, Berkshire Hathaway told the Justice Department that it was supposed to file, but said it was an inadvertent oversight.
At that time, the Justice Department did not recommend the company pay any civil penalties. They asked Berkshire Hathaway to put safeguards in place so that all lapse did not take place in the future.