The Federal Trade Commission (“FTC”) conducted its first gun-jumping case in decades against crude oil producers XCL Resources Holdings, LLC (“XCL”), Verdun Oil Company II LLC (“Verdun”), and EP Energy LLC (“EP”), and imposed a civil penalty of USD 5.6 million. A so-called “gun-jumping” violation happens when a prospective purchaser exerts control over the activities of the target entity prior to closing of the applicable waiting period required by applicable competition law rules – in the United States, the Hart-Scott-Rodino Act (“HSR”). This settlement constitutes the most substantial penalty ever levied for a gun-jumping violation in the United States as the FTC notified.

The FTC specifically claimed that XCL and Verdun exerted control over critical business decisions concerning EP’s facilities and pricing prior to the conclusion of the HSR review process by the FTC. This decision follows less than a year after the Antitrust Division of the U.S. Department of Justice (“DOJ”) levied a USD 3.5 million penalty on Legends Hospitality Parent Holdings, LLC for analogous gun-jumping behaviour. The civil penalty agreements illustrate the FTC’s and DOJ’s emphasis on breaches of the HSR regulations and acts purportedly obstructing their evaluation of proposed transactions.

Both cases emphasise the necessity of enforcing antitrust rules to oversee pre-closing coordination and integration strategies. Consequently, organisations obligated to report transactions under the HSR must establish protections at the start of M&A transactions to guarantee HSR compliance. Specifically, guidance must delineate rules that prohibit the dissemination of competitively sensitive information (e.g., limiting access to a “clean team”) and prevent the buyer from influencing the commercial operations or strategic choices of the target prior to the close.