Antitrust And Competition: Investment Firms' Voting Rights'The Devil Is In The Potential Antitrust Liability

• Published date: 01 February 2021
• Subject Matter: Corporate/Commercial Law, Anti-trust/Competition Law, Corporate and Company Law, Contracts and Commercial Law, Antitrust, EU Competition , Shareholders
• Law Firm: WilmerHale
• Author: Mr Frédéric Louis, Anne Vallery, 'lvaro Mateo Alonso and Édouard Bruc

On January 27, 2021, the Court of Justice of the European Union ("CJEU") issued an important ruling regarding an investment fund's liability for the cartel behaviour of an affiliate. The CJEU confirmed that an investment fund is liable under Article 101 of the Treaty on the Functioning of the European Union based on holding 100% voting rights over an indirect affiliate that participated in a cartel, even though the fund held well below 100% equity in that affiliate during part of the relevant period (see here). This judgement tips the scales towards enforcement and away from key defence principles such as the presumption of innocence, or the requirement to sanction only the actual offender. Nonetheless, it sheds some useful insight for financial investors to mitigate antitrust exposure.

Background

In April 2014, the European Commission ("EC") imposed fines totalling '301 million on 11 producers of high-voltage underground and/or submarine power cables, for their participation in a 10-year worldwide market and customer sharing cartel (see here). The EC sanctioned not only the companies directly involved and their industrial owners, but also an investment firm.

Between July 29, 2005 and January 28, 2009, Goldman Sachs ("GS") indirectly held, through GS Capital Partners V Funds and others, shares in Prysmian SpA and its wholly owned subsidiary, Prysmian Cavi e Sistemi Srl (altogether, "Prysmian"), one of the cartel members. Goldman Sachs held an equity at Prysmian between 100% and 84.4% until May 3, 2007 (pre-IPO), when some of Prysmian's equity was offered to the public through an IPO, and Goldman Sachs' shares fell to 31.69% (post-IPO). Although there was no evidence that GS (or its direct intermediaries) knew about, let alone had been involved in, the cartel, GS was held jointly and severally liable for '37 million of the '104.6 million fine imposed on Prysmian, proportional to its four-year investment at Prysmian.

Parental Liability and the 'Pure Financial Investor' Test under EU Law

In the EU, antitrust fines are limited by a cap set at 10% of the worldwide turnover of the undertaking that committed the antitrust violation. To increase deterrence and support its policy of imposing very large fines, the EC routinely addresses its fining decisions not only to the offending company but also to its ultimate parent. This allows it to calculate the fining cap at 10 % of the group's turnover rather than just the offending subsidiary's own turnover. To support...