HAL.WD Halliburton

The Justice Department sued activist hedge fund ValueAct Capital Management LP for $19 million, alleging the fund failed to follow federal disclosure rules regarding its purchases of stock in oil-field-services companies Halliburton Co. and Baker Hughes Inc.

In the lawsuit, filed Monday with the U.S. District Court in San Francisco, the Justice Department said ValueAct should have sought clearance from antitrust regulators when it purchased the stock in late 2014 because the hedge fund sought to influence management of both companies. Halliburton had earlier agreed to buy Baker Hughes for $35 billion.

It is the latest hit by the government against ValueAct and other activists over the antitrust disclosures, which activists have long tried to avoid and fought as unnecessary.

ValueAct has twice sparred with federal regulators over such disclosures in the past, and it earlier paid the government $1.1 million to settle similar claims, the lawsuit said. Another activist hedge fund, Third Point LLC, last year reached a settlement with the government over charges it breached the disclosure rules when it purchased Yahoo Inc. shares in 2011.

In a statement, ValueAct General Counsel Allison Bennington said the firm takes its disclosures "extremely seriously" and plans to fight the lawsuit. The firm currently holds a 5.3% stake in Baker Hughes and about 1.9% of Halliburton, according to FactSet.

"We have acted entirely properly and in compliance with the law. We fundamentally disagree with the Justice Department's allegations in this case," Ms. Bennington said. "ValueAct strongly believes in the most basic principles of shareholder rights. This includes having a relationship with company management, conducting due diligence on investments, and engaging in ordinary course communications with other shareholders."

At issue is a disclosure regime put in place by the Hart-Scott-Rodino Act, or HSR, which requires buyers of stock worth more than $76.3 million to alert regulators. The rule is meant to allow the government to get ahead of any deals that may potentially violate antitrust regulations.

Purchases of less than 10% of a company's shares that are made "solely for the purpose of investment" are exempt from the filing requirement. But investors can only rely on that exemption if they are passive, or have "no intention of participating in the formulation, determination or direction of the basic business decisions."

What that means has been a question for activists and antitrust lawyers for years. Most activists end up filing the notification and lawyers tend to warn that the exemption is very narrow.

In the lawsuit, the Justice Department accused ValueAct of planning to influence management of both Baker Hughes and Halliburton and the structure of their merger, citing internal emails and notes of meetings between ValueAct and executives at both companies. The activist supported the deal, which hasn't yet closed, and hoped to help push it through.

The suit alleges those conversations confirm ValueAct wouldn't have fit the narrow exemption.

Brent Kendall contributed to this article.

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

April 04, 2016 14:55 ET (18:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.