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Gates Agrees to $800,000 FTC Fine

Microsoft Chairman and Chief Software Architect Bill Gates agreed to an $800,000 federal civil fine Monday for violating reporting requirements about his 2002 investment in the biotech company currently marketing the erectile dysfunction drug known as Cialis.

On May 9, 2002, Gates acquired 328,000 shares of ICOS. As a result of that acquisition, Gates held 5.4 million common shares of ICOS voting securities, valued at approximately $130 million. The stake in the Bothell, Wash.-based ICOS Corp. apparently exceeded the Hart-Scott-Rodino (HSR) Act's $50 million reporting threshold and the HSR's $100 million notification threshold.

Gates was required by the HSR Act to submit a notification and observe the Act's waiting period before he made the May 2002 acquisition of ICOS voting securities. Neither Gates nor Cascade Investment LLC, his investment firm, filed a pre-merger notification under the HSR Act prior to the ICOS acquisition, according to the FTC. The commission said the investment firm claimed an HSR exemption for acquisitions made solely for the purpose of investment.

According the Federal Trade Commission (FTC), Gates did not qualify for the "solely for investment" exemption because he intended to participate in the formulation, determination, or direction of the basic business decisions of ICOS through, among other things, his membership on the board of directors of ICOS.

In 2001, Gates ran into a similar situation with the FTC when he acquired additional shares in Republic Services without filing HSR disclosures.

The FTC's Pre-merger Office informed Gates by letter that it would not recommend civil penalties for this violation, but also informed him that he "is accountable for instituting an effective program for entities he controls to ensure full compliance with the Act's requirements."

Six months later, Gates acquired the additional shares of ICOS

"This case demonstrates the need to become fully aware of the reporting requirements of the HSR Act," said Barry Nigro, deputy director of the FTC's Bureau of Competition said in a statement.

"Although the Commission has often declined to seek penalties from a party that makes an inadvertent mistake and fails to file, once he is aware that he doesn't have a complete understanding of the HSR Act he needs to go back and learn about the Act so he doesn't make a second mistake."

Nigro added, "The Commission will seek substantial penalties for the second mistake. The penalties were reduced from the statutory maximum because Mr. Gates cooperated with the Bureau's investigation and agreed to settle the matter quickly, before the Commission was required to invest significant resources."

Gates' office was not immediately available for comment.