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PSUs and a $640,000 Mistake

September 14, 2021

Usually I blog about the Hart-Scott-Rodino Act in February, when the penalties increase each year. To be honest, though, it’s not exactly my most scintillating topic, so I skipped it this year. Earlier this month, however, the FTC announced that the CEO of Capital One will pay a nearly $640,000 civil penalty due to a failure to comply with the HSR Act reporting and waiting period requirements, giving me a more provocative angle on the topic.


Background: What Is the HSR Act?

The HSR Act was enacted to provide the Federal Trade Commission and the Department of Justice with advance notice of large mergers and acquisitions by requiring the entities involved in the transaction to file reports with both agencies. It also imposes a 30-day waiting period before the acquisition can be finalized, to give the FTC and DOJ time to investigate and determine if they want to take any further action.

A significant trap for the unwary, however, is that the HSR Act applies to individuals as well as corporations. Where an individual's holdings in company stock exceed the specified filing thresholds, that individual is responsible for making the required filings.

While the HSR Act can apply to any individual, in the context of equity compensation, executives have the greatest risk of amassing stock holdings that exceed the act’s filing thresholds.

As the administrator of your company's stock plan, this is where you come in and why it's a good idea for you to be familiar with the HSR Act (because, let’s face it, if an executive exceeds the thresholds and fails to make the required filing, you can bet that executive isn’t going to blame him/herself for the failure).


HSR Act Filing Thresholds

The filing requirements apply when the value of an individual's holdings in company stock exceed specified thresholds. That sounds simple enough but like most things regulatory, the government has managed to make it a little more complicated. Here are the basic rules:

  • Two Key Thresholds: The act specifies a bunch of thresholds for various purposes, but there two that are critical for determining if an individual is subject to the filing requirements. I’m going to refer to them as the “low” and the “high” threshold.
  • Low Threshold: Individuals with holdings that are below the low threshold are not required to make filings under the HSR Act.
  • High Threshold: If an individual engages in a transaction that causes their holdings to exceed the high threshold, they are required to file under the HSR Act—no exceptions.
  • Middle Ground: If an individual engages in a transaction that causes their holdings to exceed the low threshold but not the high threshold, the individual is required to file under the HSR Act only if their assets and the company's assets (or annual net sales) exceed specified amounts.


2021 Thresholds

The thresholds change annually. Usually they increase, but this year they decreased (adjustments are tied to changes in the gross national product, not inflation). The 2021 thresholds are:

  • Low: $92 million (down from $94 million in 2020)
  • High: $368 million (down from $376 million in 2020)
  • Middle Ground: If an individual acquires enough stock that their holdings will be in between the two thresholds, their acquisition is reportable under the HSR Act if one party to the transaction has assets or annual net sales of at least $18.4 million and the other party has assets or annual net sales of at least $184 million (down from $18.8 million and $188 million in 2020, respectively).

Could these rules possibly be any more confusing? You bet! I’ve barely touched on the morass of thresholds and rules that make up the HSR Act. I think the take-away is that if any of your executives own close to $92 million in company stock, or own more than this amount, it's time to get your legal team involved in making sure the executives don't need to make these filings.


You Won’t Sneeze at the Penalties

In 2021, the penalty for failing to comply with the HSR Act can be up to $43,792—per day! And the penalty accrues through the end of the 30-day waiting period that starts when the report is filed.


What Happened with Capital One?

As with anything HSR Act-related, it’s complicated. The short answer is that, in 2018, the CEO of Capital One vested in a PSU award and received 101,148 shares as a result. When combined with the CEO’s existing holdings in company stock, the acquisition was sufficient to cause the CEO to exceed the threshold at which an HSR Act filing is required, but the CEO did not make the filing until December 18, 2019 (the report should be filed before the transaction closes).  Making matters worse, the CEO had previous HSR Act failures, for which he had promised to implement a system to prevent future failures.

As a result, the FTC fined the CEO $637,950. From the FTC’s press release:

“As the CEO of one of America’s largest banks, Richard Fairbank repeatedly broke the law,” said Holly Vedova, Acting Director of the Bureau of Competition. “There is no exemption for Wall Street bankers and powerful CEOs when it comes to complying with our country’s antitrust laws.”

Will this fine be enough to persuade the CEO and Capital One to truly implement a system to prevent future failures? It’s hard to say. According to Capital One’s 2020 proxy statement, the CEO realized around $73 million from option exercises and award payouts last year, has vested options worth over $100 million and unvested awards worth over $60 million. Given that, maybe a $600,000 fine isn’t all that meaningful to him. Would it be meaningful to your CEO?


Past and Future Enforcement

There haven’t been many fines levied against individuals for failures to comply with the HSR Act. In his blog on, Mike Melbinger notes that his last recollection of a similar enforcement dates back to December 2011, when the FTC and DOJ collected a $500,000 civil penalty for an executive’s failure to make a timely HSR filing before receiving stock as compensation. If Mike is right, that’s only two fines in almost ten years.

I’d like to think that this is because you’ve all been reading my annual blogs about the HSR Act and are dutifully ensuring that your executives complete any necessary filings. But I suspect the truth is that, despite the strong statement that I quote above from the FTC Acting Director of the Bureau of Competition, the FTC and DOJ have bigger fish to fry. It’s also likely that, in the Capital One case, the repeated nature of the failures influenced the FTC’s decision to pursue enforcement.

Even so, given the steepness of the penalties and the media scrutiny (articles about the Capital One CEO’s fine appear in the Wall Street Journal, Bloomberg, Forbes, Reuters,, and many more publications), you don’t want to risk your executives becoming a target.

Thanks to Bruce Brumberg of for bringing this development to my attention.

  • Barbara Baksa
    By Barbara Baksa

    Executive Director