Key Takeaways
- • Squire Patton Boggs warns family offices that board seats and board observer rights in private equity and venture capital investments now carry heightened FTC and DOJ antitrust scrutiny under Section 8 of the Clayton Act.
- • Section 8 (15 U.S.C. § 19) bars one person from serving as director or officer of two competing corporations unless an exemption applies; the article cites a US$51,380,000 capital/surplus threshold and a US$5,138,000 competitive sales floor.
- • The FTC's October 2024 Sevita Health action resolved an unlawful interlock involving Sevita Health and Beacon Specialized Living Services through voluntary director resignations, with no complaint or consent order.
- • Regulators view indirect interlocks, observer arrangements, and "deputized" designees from the same family office as potential Section 8 violations, even where no single individual sits on competing boards.
- • Family offices should review board and observer appointments regularly and include interlock analysis in due diligence before taking on designation rights.
Summary
Direct private equity and venture capital investments have become a larger part of family office alternative investment strategies, and such deals commonly grant investors a board seat or the right to nominate a board observer. According to Squire Patton Boggs, recent FTC enforcement activity makes these customary governance rights a regulatory risk, particularly where investments are concentrated in one industry or involve companies with overlapping customers.
Section 8 of the Clayton Act prohibits a person from serving simultaneously as director or officer of two competing corporations unless a statutory exemption applies. The statute's purpose is to prevent sharing of competitively sensitive information and coordination between nominal competitors. The article notes that Section 8 currently applies to corporations with capital, surplus and undivided profits exceeding US$51,380,000, and does not apply if either corporation's competitive sales are below US$5,138,000, or below 2% of one company's total sales or 4% of each company's total sales. A one-year grace period allows an interlocking director to remain while two companies that became competitors after an appointment resolve the issue.
Agencies have expanded their view beyond direct interlocks, where one individual sits on both boards, to indirect interlocks in which different individuals act for the same fund or parent. The article reports that senior DOJ and FTC officials have called Section 8 a key enforcement priority, with proactive sweeps covering private equity and common ownership structures. Both agencies also apply the statute to partnerships and limited liability companies. Board observer rights may raise concerns under the Sherman or FTC Acts if they give access to competitors' sensitive information, even where no technical interlock exists.
The article links the agencies' focus to resignations in 2023 and 2024 across technology, healthcare and private equity. In October 2024, the FTC announced that three individuals resigned from the boards of Sevita Health and Beacon Specialized Living Services, Inc., which provide residential and supportive services to individuals with intellectual and developmental disabilities. The FTC found the companies were competitors and the overlapping memberships an unlawful Section 8 interlock. No complaint or consent order was issued; the FTC praised the companies' cooperation and said voluntary resignations will remain the preferred resolution if issues are promptly remediated.
For family offices, the article advises that Section 8 compliance be part of routine governance and investment diligence. Multiple holdings in competing or adjacent companies, nominee directors, or observer roles can create interlocks, and regulators may treat representation by different individuals from the same family office as an impermissible interlock. The firm recommends periodic reviews of designee and observer appointments, both at family offices and their portfolio companies, and pre-investment assessment whenever a deal grants board designation or observer rights. Even where an exemption applies, the sharing of competitively sensitive information remains a risk under other antitrust laws.
Section 8 of the Clayton Act prohibits a person from serving simultaneously as director or officer of two competing corporations unless a statutory exemption applies. The statute's purpose is to prevent sharing of competitively sensitive information and coordination between nominal competitors. The article notes that Section 8 currently applies to corporations with capital, surplus and undivided profits exceeding US$51,380,000, and does not apply if either corporation's competitive sales are below US$5,138,000, or below 2% of one company's total sales or 4% of each company's total sales. A one-year grace period allows an interlocking director to remain while two companies that became competitors after an appointment resolve the issue.
Agencies have expanded their view beyond direct interlocks, where one individual sits on both boards, to indirect interlocks in which different individuals act for the same fund or parent. The article reports that senior DOJ and FTC officials have called Section 8 a key enforcement priority, with proactive sweeps covering private equity and common ownership structures. Both agencies also apply the statute to partnerships and limited liability companies. Board observer rights may raise concerns under the Sherman or FTC Acts if they give access to competitors' sensitive information, even where no technical interlock exists.
The article links the agencies' focus to resignations in 2023 and 2024 across technology, healthcare and private equity. In October 2024, the FTC announced that three individuals resigned from the boards of Sevita Health and Beacon Specialized Living Services, Inc., which provide residential and supportive services to individuals with intellectual and developmental disabilities. The FTC found the companies were competitors and the overlapping memberships an unlawful Section 8 interlock. No complaint or consent order was issued; the FTC praised the companies' cooperation and said voluntary resignations will remain the preferred resolution if issues are promptly remediated.
For family offices, the article advises that Section 8 compliance be part of routine governance and investment diligence. Multiple holdings in competing or adjacent companies, nominee directors, or observer roles can create interlocks, and regulators may treat representation by different individuals from the same family office as an impermissible interlock. The firm recommends periodic reviews of designee and observer appointments, both at family offices and their portfolio companies, and pre-investment assessment whenever a deal grants board designation or observer rights. Even where an exemption applies, the sharing of competitively sensitive information remains a risk under other antitrust laws.
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