The Federal Trade Commission (FTC) announced yesterday that Canon Inc. and Toshiba Corporation agreed to pay a $2.5 million fine each to settle charges that the two companies violated the Hart-Scott-Rodino Act by failing to report Toshiba’s sale of Toshiba Medical Systems Corporation (TMSC) to Canon. The FTC referred the case to the U.S. Department of Justice (DOJ), which charged the companies with failing to comply with the Act and avoiding its notification and waiting period requirements.

The regulators alleged that Toshiba wished to sell TMSC and realize the proceeds before the end of its fiscal year, March 31, 2016. The sale process began in December 2015, and the complaint alleges that the parties believed that there was not enough time to receive antitrust clearance.

Allegedly, Toshiba and Canon consummated the transaction on March 17, 2016 through the use of a new special purpose company, MS Holding Company. Canon paid Toshiba $6.1 billion dollars to acquire a non-voting share with rights custom-made for Canon and 100 options to acquire 134,980,000 ordinary voting shares. At the same time, Toshiba sold its 20 Class A voting shares in TMSC to MS Holding for $900.

Regulators contended that the structure of the transaction circumvented the need to notify the regulators of the sale prior to its alleged consummation. The Hart-Scott-Rodino Act requires parties engaging in a reportable transaction to file notifications with the FTC and DOJ and to observe a waiting period—typically 30 days—before consummating the transaction. Violations of the Act carry strict penalties, and the maximum civil penalty in this case is $42,530 for each day of violation. Structuring a transaction for no benefit other than to avoid or delay HSR Act filing requirements is considered avoidance and violates the Act and related regulations.

MS Holding and Canon filed for HSR clearance on April 26, 2016 regarding the exercise of options for the ordinary shares of TMSC. Under protest, they submitted amended HSR filings naming Toshiba as the acquired party on July 22, 2016. The review period for these amended filings closed on August 22, 2016, and the regulators considered the parties to have remained in violation of the HSR Act from March 17, 2016 until August 22, 2016. In December 2016, after antitrust clearance was granted for the reported transaction, Canon exercised its options to acquire the ordinary shares of TMSC and TMSC acquired the Class A voting shares from MS Holding.