PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT This memorandum contains information protected by the attorney-client privilege and the attorney work-product doctrine. It is prepared by counsel at Calderwood & Harkness LLP in anticipation of litigation and for the purpose of providing legal advice to Torchlight Mining Corp. This document must not be disclosed to any person outside the attorney-client relationship without the express prior written consent of Calderwood & Harkness LLP and Torchlight Mining Corp. Inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
MEMORANDUM
TO: Elaine Forsythe, Responsible Partner, Antitrust & Competition Practice Group
FROM: Aaron Liu, Lead Associate, Antitrust & Competition Practice Group
DATE: February 20, 2022
RE: Antitrust Division Investigation — Intake Memorandum: Defense of Torchlight Mining Corp. in DOJ Grand Jury Investigation (Price-Fixing, Specialty Minerals Sector)
MATTER NO.: 1039-00001
OFFICE: Calderwood & Harkness LLP, 555 California Street, 40th Floor, San Francisco, CA 94104
I. Purpose and Scope of Memorandum
The purpose of this memorandum is to provide the responsible partner and the defense team with a comprehensive summary of all known facts, the applicable legal framework, and preliminary defense strategy considerations in connection with the newly opened U.S. Department of Justice ("DOJ") Antitrust Division grand jury investigation affecting our client, Torchlight Mining Corp. ("TMC" or "Torchlight"). This memorandum is being prepared two days after Calderwood & Harkness LLP's formal engagement on February 18, 2022, and is intended to serve as the foundational reference document for this matter. It will be updated on a rolling basis as the factual record develops, as additional documents and information are obtained, and as the investigation progresses.
This memorandum is the product of attorney work-product and reflects the mental impressions, conclusions, opinions, and legal theories of counsel. It is prepared in anticipation of litigation and for the purpose of rendering legal advice to TMC. Accordingly, its contents are protected by both the attorney-client privilege and the work-product doctrine and should be treated with the highest degree of confidentiality.
The scope of this memorandum is as follows:
(a) background on TMC and the specialty minerals industry;
(b) the investigation and its procedural history to date;
(c) the parties and key individuals implicated in or relevant to the investigation;
(d) the alleged conduct forming the basis of the DOJ's investigation;
(e) the applicable legal framework, including the Sherman Antitrust Act, DOJ enforcement policies, the leniency program, and relevant sentencing and penalty considerations;
(f) preliminary defense strategy considerations, including cooperation, internal investigation, document preservation and production, public disclosure and securities issues, and insurance coverage; and
(g) immediate next steps and action items for the defense team.
This memorandum is based on information available as of February 20, 2022. At this early stage of the engagement, we have relied principally on the text of the grand jury subpoena, preliminary discussions with TMC's General Counsel Priya Anand, publicly available information, and our team's independent analysis of the legal landscape. Additional fact-gathering through document collection, custodian interviews, and the internal investigation will refine and, in some cases, may materially alter the assessments set forth herein. All factual statements in this memorandum should be understood as preliminary and subject to revision.
II. Client Background
A. Torchlight Mining Corp. — Corporate Overview
Torchlight Mining Corp. ("TMC" or "Torchlight") is a diversified mining and specialty-minerals company incorporated under the Canada Business Corporations Act ("CBCA"), bearing CBCA Corporation No. 7841526-1. TMC's registered office is located at 200 Bay Street, Suite 3400, Toronto, Ontario M5J 2J2, Canada. The company is publicly listed on the Toronto Stock Exchange (TSX: TRCL) and the New York Stock Exchange (NYSE: TMC), making it a dual-listed reporting issuer subject to both Canadian continuous-disclosure obligations and U.S. Securities and Exchange Commission ("SEC") reporting requirements.
For its fiscal year ended December 31, 2021 ("FY 2021"), TMC reported consolidated revenue of approximately CAD 4.27 billion, which at the prevailing average USD/CAD exchange rate of approximately 0.792, equates to approximately USD 3.38 billion. Consolidated EBITDA for the same period was approximately CAD 812 million. TMC is a mid-cap company with a significant operational footprint across multiple jurisdictions.
TMC operates fourteen mines across Canada, the United States, Brazil, and Australia, supplemented by six downstream chemical-processing facilities. The company's principal products include high-purity feldspar, industrial talc, rare-earth concentrates, and a range of other specialty minerals and chemical products. TMC's operations span the full value chain from extraction through initial processing and, in certain product categories, downstream chemical conversion for sale to industrial and chemical-manufacturing customers.
TMC's corporate governance structure includes a board of directors chaired by Margaret Caldwell, with an Audit Committee chaired by Janet Moreau-Shaw. Day-to-day operations are overseen by CEO Søren Dalmqvist, with support from General Counsel Priya Anand and Chief Financial Officer Richard Fong.
B. U.S. Operations and the U.S. Specialty Minerals Division
TMC's U.S. operations are conducted through its wholly owned subsidiary, Torchlight Mining (U.S.) Inc. ("TMC US"), a corporation incorporated in the State of Nevada, bearing Nevada Entity No. NV20160438721. TMC US's principal office is located at 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117, USA. TMC US's federal employer identification number ("EIN") is 83-2947106.
The U.S. Specialty Minerals Division, which operates within the TMC US subsidiary, is the division at the center of the DOJ investigation. For FY 2021, the U.S. Specialty Minerals Division generated revenue of approximately USD 687 million, representing approximately 20.3% of TMC's consolidated revenue. The Division is a significant contributor to TMC's overall profitability and represents the company's primary interface with U.S. industrial and chemical-manufacturing customers.
The products sold by the U.S. Specialty Minerals Division include high-purity feldspar, industrial talc, and rare-earth concentrates. These products are sold to a broad base of U.S.-based industrial and chemical-manufacturing customers, including companies in the ceramics, coatings, plastics, electronics, and advanced-materials sectors. The Division's customers are located across the continental United States, with particular concentration in the Western, Midwestern, and Southeastern regions.
The U.S. Specialty Minerals Division's commercial operations, including pricing, customer management, and competitive strategy, are the core focus of the DOJ's investigation. As discussed in greater detail below, the commercial pricing function within the Division was led, during the relevant period, by Gavin Holt, former Vice President of U.S. Specialty Minerals Sales.
C. Key TMC Personnel
The following individuals at TMC are most relevant to the investigation and to the defense team's work:
Margaret Caldwell — Board Chair. Ms. Caldwell serves as the Chair of TMC's Board of Directors. She is responsible for board-level oversight and governance. There is no current indication of her personal involvement in the alleged conduct.
Søren Dalmqvist — Chief Executive Officer. Mr. Dalmqvist is the decision-maker on TMC's cooperation and settlement strategy in connection with the DOJ investigation. Based on preliminary information received from General Counsel Priya Anand, Mr. Dalmqvist had no personal involvement in the alleged conduct. He assumed the CEO role in 2015 and has delegated commercial operations at the divisional level to senior management. Mr. Dalmqvist's engagement and support for the cooperation strategy will be critical to its success.
Priya Anand — General Counsel. Ms. Anand serves as TMC's General Counsel and is the company's primary legal liaison with Calderwood & Harkness. Upon learning of the grand jury subpoena, Ms. Anand oversaw initial document preservation measures and an initial internal review of potentially responsive materials prior to TMC's engagement of Calderwood & Harkness. Ms. Anand has been cooperative and forthcoming in our preliminary discussions and has expressed TMC's commitment to full cooperation with the investigation.
Richard Fong — Chief Financial Officer. Mr. Fong oversees TMC's financial reporting and will be instrumental in coordinating disclosure obligations, reserve assessments, and communications with auditors and financial advisors.
Janet Moreau-Shaw — Chair, Audit Committee, TMC Board. Ms. Moreau-Shaw chairs the Board's Audit Committee, which will require regular briefings on the investigation, the financial exposure, and the adequacy of any litigation reserves established.
Gavin Holt — Former Vice President, U.S. Specialty Minerals Sales. Mr. Holt is the individual most directly implicated in the alleged pricing communications with competitor counterparts. He led TMC's commercial pricing function for the U.S. Specialty Minerals Division from approximately 2016 through his resignation, which became effective on September 30, 2021 — approximately four months before the grand jury investigation formally commenced. His resignation preceded the investigation's formal opening but coincided roughly with Cascade Chemical Supply Co.'s cooperation agreement with the DOJ (approximately September 15, 2021). The timing of Holt's departure is a fact that the DOJ may scrutinize. Holt's status as a former employee complicates our ability to control or direct his cooperation, as discussed in greater detail in Section VIII below.
Sandra Chu — Director of Pricing Analytics, U.S. Specialty Minerals Division. Ms. Chu reported directly to Gavin Holt and is currently employed by TMC. She is a key fact witness regarding TMC's internal pricing processes, pricing models, and the manner in which pricing decisions were communicated and implemented within the Division. Preliminary indications suggest that Ms. Chu may have received pricing-adjustment instructions from Holt that were consistent with the alleged coordinated pricing. The scope and nature of her knowledge will be a central focus of the internal investigation.
Thomas Eriksen — Regional Sales Manager (Western Region), U.S. Specialty Minerals Division. Mr. Eriksen is currently employed by TMC and attended certain NASMC industry trade-association conferences during the relevant period at which the DOJ suspects coordination occurred. His role in the alleged conduct is unclear at this time, and the internal investigation will need to determine the extent of his participation in or awareness of the suspected communications.
III. The Investigation — Procedural History to Date
A. Cascade Chemical Supply Co. — Triggering Event
The DOJ investigation appears to have been triggered by the cooperation of Cascade Chemical Supply Co. ("Cascade"), a Washington state corporation headquartered at 901 West Riverside Avenue, Suite 300, Spokane, Washington 99201. Cascade operates as a downstream distributor and processor of specialty minerals, purchasing high-purity feldspar, industrial talc, and other products from producers including TMC, Ridgecrest Minerals Inc. ("Ridgecrest"), and Pinnacle Earth Resources Ltd. ("Pinnacle"). Cascade's president is Leonard Massey.
On or about September 15, 2021, Cascade entered into a cooperation agreement with the DOJ Antitrust Division. The precise terms of that agreement are not yet known to us, but based on the timeline and the nature of the investigation, it appears that Cascade provided documents and testimony that triggered the broader probe into pricing practices in the specialty-minerals sector. It is reasonable to infer that Cascade's disclosures included information regarding pricing patterns, customer-allocation arrangements, and communications between producers that Cascade observed or learned of in its capacity as a customer and distributor.
Cascade is separately represented by Whitfield, Strauss & Tully LLP, a Seattle-based law firm. The lead partner on the Cascade engagement is Rebecca Ostrander. We do not have a direct relationship with Ms. Ostrander's team at this time, and given Cascade's status as a cooperating witness, no joint-defense relationship is contemplated.
B. Grand Jury Investigation — Formal Opening
On February 10, 2022, the DOJ Antitrust Division formally opened a grand jury investigation. The grand jury is designated as Grand Jury No. GJ-22-0194 and is seated in the United States District Court for the Northern District of California, San Francisco Division, located at 450 Golden Gate Avenue, San Francisco, California 94102. The investigation is supervised by the Antitrust Division's Criminal Enforcement Section in Washington, D.C., and is being conducted out of the DOJ's San Francisco Field Office, located at 450 Golden Gate Avenue, Room 10-0101, San Francisco, California 94102.
The selection of the Northern District of California as the forum for the grand jury is consistent with TMC's significant U.S. operations and the location of a substantial portion of the affected commerce in the Western United States. It also provides geographical convenience for our San Francisco-based defense team.
C. Pre-Opening: Ridgecrest Target Letter
Before the formal opening of the grand jury investigation, Ridgecrest Minerals Inc. received a target letter from the DOJ on or about January 12, 2022. The issuance of a target letter to Ridgecrest approximately one month before the grand jury was formally empaneled indicates that the DOJ had already developed substantial evidence against Ridgecrest at that point, likely based in significant part on Cascade's cooperation disclosures and any documentary or testimonial evidence obtained from Cascade.
Ridgecrest is separately represented by Davenport, Kline & Archer LLP, a Denver-based firm. The lead partner is Helen Marchetti. We do not currently have insight into Ridgecrest's defense posture or whether Ridgecrest is considering a cooperation strategy. The divergence between TMC's posture (subject, with a subpoena but no target letter) and Ridgecrest's posture (target, with a target letter) is a significant strategic consideration, as discussed further in Section VIII below.
D. Grand Jury Subpoena to TMC
On February 14, 2022, TMC received a grand jury subpoena duces tecum, designated as Subpoena No. GJ-22-0194-SD-003. The subpoena was served on TMC US at its Reno, Nevada office and calls for the production of documents relating to the following subject matters:
(i) pricing of high-purity feldspar, industrial talc, and rare-earth concentrates sold to U.S. customers during the period from January 1, 2015 through the date of the subpoena;
(ii) customer allocation, including agreements, communications, or understandings regarding the assignment or division of customers among TMC and its competitors;
(iii) competitive contacts, including all communications between TMC personnel and personnel of Ridgecrest Minerals Inc., Pinnacle Earth Resources Ltd., or any other competitor regarding pricing, customers, bids, or market conditions; and
(iv) participation in industry trade-association events, including meetings, conferences, and communications sponsored by or occurring in connection with the North American Specialty Minerals Council ("NASMC").
The subpoena's return date is to be confirmed; Calderwood & Harkness sent an acknowledgment letter and a request for a 60-day extension of the return date to DOJ Trial Attorney Denise Kowalski on February 22, 2022, as described below.
It is important to note that the subpoena is a subpoena duces tecum directed to the corporate entity. It does not, at this stage, compel testimony from any individual. However, the subpoena's scope is broad, and compliance will require a comprehensive collection and review effort.
E. Engagement of Calderwood & Harkness
On February 18, 2022, TMC formally engaged Calderwood & Harkness LLP to represent it in connection with the DOJ grand jury investigation. The engagement letter was signed by Elaine Forsythe, Responsible Partner in the firm's San Francisco office, and Howard Bellamy, Billing Partner in the firm's New York office. On the client side, the engagement letter was executed by Priya Anand, General Counsel, on behalf of TMC.
The engagement covers the following scope of services: (a) defense of TMC in the grand jury investigation, including subpoena compliance, witness preparation, and negotiations with the DOJ; (b) conduct of an internal investigation into the alleged conduct; (c) advice on cooperation strategy and, as appropriate, negotiation of a non-prosecution agreement or other resolution; (d) advice on related matters, including public disclosure obligations, insurance coverage, and compliance remediation.
The agreed billing rates are as follows: Partners at USD 1,450 per hour; Senior Associates at USD 950 per hour; Associates at USD 725 per hour; plus disbursements (including travel, vendor costs, and other out-of-pocket expenses). The initial budget estimate for the internal investigation and grand jury defense phase is USD 12 million. This estimate is preliminary and may be revised as the scope of the investigation and the defense effort become clearer. The internal Matter No. assigned by Calderwood & Harkness is 1039-00001.
F. Immediate Steps Taken
The following steps have been taken or initiated in the two days since the firm's engagement:
February 22, 2022 — Acknowledgment Letter and Extension Request. Calderwood & Harkness sent a letter to DOJ Trial Attorney Denise Kowalski formally acknowledging receipt of Subpoena No. GJ-22-0194-SD-003 and requesting a 60-day extension of the return date. The letter identified Calderwood & Harkness as counsel for TMC and expressed TMC's intention to cooperate fully with the investigation. We are awaiting a response from the DOJ. Based on standard practice, we expect the DOJ to grant a reasonable extension, although the duration may be subject to negotiation.
Litigation Hold Notice. A company-wide litigation hold notice is in the process of being drafted and is targeted for issuance on or before March 1, 2022. The litigation hold will be issued under the signature of General Counsel Priya Anand and will direct all TMC and TMC US personnel to preserve all documents and electronically stored information potentially relevant to the investigation. A separate, more targeted litigation hold with custodian-specific instructions will be directed to key personnel in the U.S. Specialty Minerals Division.
Custodian and Data Source Identification. The process of identifying key custodians and data sources is underway. Preliminary custodians include Gavin Holt (to the extent his data remains on TMC systems), Sandra Chu, Thomas Eriksen, and other commercial personnel within the U.S. Specialty Minerals Division who interacted with customers, competitors, or industry trade associations during the relevant period.
E-discovery and Forensic Collection Vendor. The engagement of an e-discovery and forensic collection vendor is anticipated. Redstone Digital Forensics Inc. ("Redstone"), a McLean, Virginia-based firm, is under consideration for this engagement. Redstone has substantial experience in DOJ antitrust investigations and has the technical capability to perform forensic collection of email, messaging-application data (including VaultChat), shared-drive documents, and mobile-device data. We anticipate finalizing the engagement with Redstone by mid-March 2022.
IV. Parties to the Investigation
A. U.S. Department of Justice — Antitrust Division
The investigation is being conducted by the Criminal Enforcement Section of the DOJ Antitrust Division. The lead prosecutors assigned to the matter are:
Denise Kowalski, Trial Attorney, Antitrust Division, San Francisco Field Office. Ms. Kowalski is the primary day-to-day contact for defense counsel and is expected to lead the grand jury presentations and coordinate subpoena compliance matters.
Marcus Reeves, Senior Trial Attorney, Antitrust Division, San Francisco Field Office. Mr. Reeves appears to serve as the senior attorney on the prosecution team and will likely have primary responsibility for strategy-level decisions regarding the scope of the investigation and charging recommendations.
The supervising official at the Antitrust Division headquarters in Washington, D.C. is Julia Stafford-Hayes, Deputy Assistant Attorney General ("DAAG"), Antitrust Division. DAAG Stafford-Hayes has authority to approve key investigative decisions, including the issuance of target letters, the filing of charges, and the approval of plea agreements, non-prosecution agreements, and deferred prosecution agreements.
The grand jury is seated in the United States District Court for the Northern District of California, San Francisco Division. All grand jury proceedings will take place at the federal courthouse at 450 Golden Gate Avenue, San Francisco, California 94102.
B. Torchlight Mining Corp. — Our Client (Subject/Target)
TMC's corporate background is described in detail in Section II above. For purposes of the investigation, the key points regarding TMC's status are as follows:
As of the date of this memorandum (February 20, 2022), TMC has received a grand jury subpoena duces tecum (Subpoena No. GJ-22-0194-SD-003) but has not received a target letter from the DOJ. The absence of a target letter is significant: it indicates that TMC's current status in the investigation is likely that of a "subject" — meaning a person or entity whose conduct is within the scope of the grand jury's investigation — rather than a "target" — meaning a person or entity as to whom the prosecutor or the grand jury has substantial evidence linking the person to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant.
However, TMC's status may be elevated from "subject" to "target" as the investigation progresses. Based on our experience in similar matters and the nature of the allegations, we anticipate that a target letter may be issued to TMC in the coming months. We will monitor this development closely. The anticipated timing for a target letter, based on the typical pace of DOJ antitrust investigations, is approximately mid-2022 (for planning purposes, we note that TMC is expected to receive a target letter on or about May 20, 2022, though this is an estimate that may shift based on the investigation's trajectory).
C. Ridgecrest Minerals Inc. — Co-Subject / Co-Target
Ridgecrest Minerals Inc. ("Ridgecrest") is a Delaware corporation headquartered at 1700 Lincoln Street, Suite 4200, Denver, Colorado 80203. Ridgecrest is the second-largest North American producer of high-purity feldspar and industrial talc, with FY 2021 revenue of approximately USD 1.92 billion. Ridgecrest is a portfolio company of Marlowe Asset Management Peak Capital Partners LP, a Denver-based private equity fund organized as a Delaware limited partnership. The involvement of a private equity sponsor may influence Ridgecrest's approach to the investigation, including its willingness to cooperate and its risk tolerance for protracted litigation.
The key Ridgecrest personnel identified in the investigation are:
Brian Novotny — CEO of Ridgecrest. Mr. Novotny's role in the alleged conduct, if any, is not yet known.
Carl Edgerton — Vice President of Sales, Ridgecrest. Mr. Edgerton has been identified in DOJ materials as a key participant in the suspected conduct. The first documented VaultChat exchange between TMC's Gavin Holt and Ridgecrest's Carl Edgerton occurred on March 14, 2017, as discussed in Section V below.
Ridgecrest received a target letter from the DOJ on approximately January 12, 2022, making it the first of the three producers (TMC, Ridgecrest, and Pinnacle) to be formally designated as a target. Ridgecrest is separately represented by Davenport, Kline & Archer LLP, located at 1801 California Street, Suite 3500, Denver, Colorado 80202. The lead partner on the Ridgecrest defense is Helen Marchetti.
D. Pinnacle Earth Resources Ltd. — Co-Subject / Co-Target
Pinnacle Earth Resources Ltd. ("Pinnacle") is an Ontario corporation headquartered at 85 Elm Street West, Suite 600, Sudbury, Ontario P3C 1T3, Canada. Pinnacle's U.S. operations are conducted from an office located at 222 South Main Street, Suite 1500, Salt Lake City, Utah 84101. Pinnacle is among the top five North American producers of rare-earth concentrates and specialty industrial minerals, with FY 2021 revenue of approximately CAD 1.45 billion (approximately USD 1.15 billion at prevailing exchange rates).
The key Pinnacle personnel identified in the investigation are:
Douglas Harlowe — CEO of Pinnacle. Mr. Harlowe's role in the alleged conduct is not yet known.
Kevin Tsang — Former Senior Vice President of Commercial Operations, Pinnacle. Mr. Tsang has been identified as a key individual in the DOJ investigation. His tenure at Pinnacle and the timing of his departure are not yet known to us and will be the subject of further inquiry.
Pinnacle is separately represented by Ashford Whitmore LLP. Ashford Whitmore's offices relevant to this matter include its Toronto office at 100 King Street West, Suite 5700, and its New York office at 485 Lexington Avenue, 30th Floor. The lead partner on the Pinnacle defense is George Nakamura.
E. Cascade Chemical Supply Co. — Cooperating Witness Entity
Cascade Chemical Supply Co. is described in Section III.A above. As a cooperating witness entity, Cascade's interests are aligned with the DOJ prosecution team. Cascade's cooperation disclosures — including documents, communications, and testimony from its personnel — are expected to form the evidentiary foundation of the DOJ's case. Defense counsel should anticipate that Cascade's cooperation will yield pricing records, correspondence, purchase orders, and potentially testimony regarding conversations between Cascade personnel and the sales teams at TMC, Ridgecrest, and Pinnacle that may corroborate the alleged conspiracy.
Cascade is represented by Whitfield, Strauss & Tully LLP (Seattle), with lead partner Rebecca Ostrander.
F. Industry Trade Association — North American Specialty Minerals Council (NASMC)
The North American Specialty Minerals Council ("NASMC") is a 501(c)(6) trade association headquartered at 2300 Wilson Boulevard, Suite 400, Arlington, Virginia 22201. NASMC organizes quarterly industry conferences and publishes pricing benchmarks, market reports, and industry white papers relevant to the specialty-minerals sector. Its membership includes producers, distributors, and end-users of specialty minerals across North America.
NASMC conferences serve as regular gathering points for industry participants and, according to the DOJ's investigation, provided the opportunity for the allegedly anticompetitive meetings that are central to the suspected conspiracy. Several allegedly anticompetitive side meetings between senior commercial personnel from TMC, Ridgecrest, and Pinnacle are suspected to have occurred on the margins of NASMC conferences between 2017 and 2021. Conference locations during the relevant period include Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida.
NASMC itself is not identified as a target or subject of the investigation. However, NASMC records — including attendee lists, conference agendas, meeting-room assignments, and published pricing benchmarks — may be obtained by the DOJ through subpoena and will be relevant to establishing the opportunity for and context of the alleged coordination.
V. The Alleged Conduct
A. Overview of the Suspected Conspiracy
Based on the grand jury subpoena, preliminary information from TMC's General Counsel, and our analysis of the available facts, the DOJ alleges that from approximately January 2017 through at least August 2021 — a period of approximately four years and eight months — senior commercial personnel at three companies engaged in a conspiracy to restrain trade in the specialty-minerals sector. Specifically, the DOJ's investigation focuses on the following alleged conduct by Gavin Holt (TMC), Carl Edgerton (Ridgecrest), and Kevin Tsang (Pinnacle):
1. Price-Fixing. The participants are alleged to have agreed to fix, raise, stabilize, or maintain prices for high-purity feldspar, industrial talc, and rare-earth concentrates sold to U.S. industrial and chemical-manufacturing customers. The alleged price-fixing is believed to have involved coordinated price increases, agreed-upon minimum prices, and the exchange of competitively sensitive pricing information.
2. Customer Allocation. The participants are alleged to have agreed to allocate customers among the three producers, dividing the U.S. market for the affected products so as to reduce competition for individual customer accounts.
3. Bid-Rigging. The participants are alleged to have agreed to rig bids for supply contracts, including agreements regarding which producer would submit the winning bid and at what price, with other producers submitting complementary (intentionally non-competitive) bids or refraining from bidding altogether.
If established, each of these categories of conduct constitutes a per se violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. Per se violations are those agreements among competitors that are so inherently anticompetitive that they are deemed unlawful without any further inquiry into their actual competitive effects. Price-fixing, customer allocation, and bid-rigging are the paradigmatic per se offenses.
B. Means and Methods of Communication
The alleged conspiracy is believed to have been carried out through several means of communication:
In-Person Meetings at NASMC Conferences. The DOJ suspects that the participants held side meetings on the margins of official NASMC quarterly conference events. These side meetings are believed to have occurred at NASMC conferences held in Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida during the period from 2017 through 2021. The conference setting provided a facially legitimate reason for the participants to be in the same location, potentially allowing the anticompetitive meetings to occur without attracting suspicion. The precise dates, locations, and substance of these side meetings are not yet known to us and will be a central focus of the internal investigation.
Encrypted Messaging via the "VaultChat" Application. The participants communicated through the VaultChat encrypted-messaging application. VaultChat is a commercially available end-to-end encrypted messaging platform that has gained notoriety in antitrust enforcement circles due to its use by cartel participants seeking to conceal communications from detection. The first documented VaultChat exchange between Gavin Holt and Carl Edgerton occurred on March 14, 2017, which aligns with the approximate start of the alleged conspiracy period. The existence of VaultChat communications is a significant evidentiary issue: the use of an encrypted messaging platform may be cited by the DOJ as consciousness-of-guilt evidence, suggesting that the participants were aware that their communications were anticompetitive and sought to conceal them. The forensic recovery and production of VaultChat messages from TMC devices will require specialized handling by the e-discovery vendor.
Telephone Calls. The participants are believed to have communicated by telephone on occasion. Telephone records and call logs for the relevant TMC personnel may be obtainable from TMC's telecommunications systems and carriers and will need to be preserved and collected.
C. Affected Commerce
The DOJ estimates the total volume of affected commerce at approximately USD 1.34 billion over the conspiracy period. This figure represents the sum of U.S. sales of the three product categories — high-purity feldspar, industrial talc, and rare-earth concentrates — by TMC, Ridgecrest, and Pinnacle from approximately January 2017 through August 2021.
TMC's share of the affected commerce is estimated at approximately USD 478 million, representing approximately 35.7% of the total (calculated as $478 million ÷ $1,340 million ≈ 35.7%). This figure is preliminary and based on available revenue data; it will need to be validated through the forensic-accounting analysis to be conducted during the internal investigation. The affected-commerce figure is critically important because it serves as the basis for calculating the potential criminal fine under the DOJ's standard methodology, as discussed in Section VI.G below.
D. Key Individual — Gavin Holt
Gavin Holt is the TMC individual most directly implicated in the alleged conduct and warrants detailed treatment in this memorandum.
Mr. Holt served as Vice President of U.S. Specialty Minerals Sales from approximately 2016 through his resignation, which became effective on September 30, 2021. In this role, he led TMC's commercial pricing function for the U.S. Specialty Minerals Division. He had authority to set and adjust prices for the Division's products, to negotiate customer contracts, and to direct the Division's sales team. He reported to the president of TMC US and, through that reporting line, to TMC's CEO.
Holt resigned from TMC effective September 30, 2021 — approximately four months before the grand jury investigation formally commenced on February 10, 2022, and approximately two weeks after Cascade Chemical Supply Co. entered into its cooperation agreement with the DOJ (approximately September 15, 2021). The proximity of Holt's resignation to Cascade's cooperation agreement raises a question that the DOJ may explore: whether Holt became aware of Cascade's cooperation and resigned in anticipation of the investigation, or whether his departure was coincidental. This question has implications for Holt's individual culpability assessment and for the DOJ's evaluation of TMC's corporate responsibility.
As of the date of this memorandum, Holt has not yet retained separate personal counsel. Based on the trajectory of similar matters, we anticipate that Holt will retain defense counsel in the coming months. For planning purposes, we note that Holt is expected to retain Briarcliff Law Group PLLC, San Francisco (lead attorney Patrick Dunleavy), on approximately June 10, 2022, though this cannot be confirmed at this time.
Several critical considerations arise from Holt's departure from TMC:
(i) Loss of Control. Because Holt is no longer employed by TMC, he is not subject to TMC's direction or control. TMC cannot compel Holt to cooperate with Calderwood & Harkness's internal investigation, to participate in proffer sessions with the DOJ on TMC's behalf, or to refrain from taking actions that may be adverse to TMC's interests.
(ii) Fifth Amendment Privilege. Holt, as an individual, has the right to assert the Fifth Amendment privilege against self-incrimination. He may decline to answer questions or provide information to Calderwood & Harkness or to the DOJ. If Holt asserts his Fifth Amendment rights, TMC's ability to develop a complete factual record through the internal investigation may be impaired.
(iii) Separate Interests. Holt's interests and TMC's interests may diverge significantly. Holt faces potential individual criminal liability, including imprisonment of up to ten years per count. His defense strategy may involve minimizing his personal role or, alternatively, cooperating with the DOJ against TMC and other corporate entities in exchange for leniency. TMC's cooperation strategy must be developed independently of Holt's individual posture.
(iv) Carve-Out in Cooperation Agreement. If TMC negotiates a non-prosecution agreement with the DOJ, the agreement should contain a carve-out for Holt to ensure that TMC's cooperation credit is preserved regardless of Holt's individual defense posture.
E. Other TMC Personnel of Interest
Sandra Chu — Director of Pricing Analytics, U.S. Specialty Minerals Division. Ms. Chu reported directly to Gavin Holt during his tenure. She is currently employed by TMC and has been identified as a key fact witness regarding TMC's internal pricing processes, pricing models, data analytics, and the manner in which pricing decisions were formulated and communicated within the Division. Preliminary indications suggest that Ms. Chu may have received pricing-adjustment instructions from Holt that, when viewed in the context of the DOJ's allegations, could be consistent with the implementation of coordinated pricing. The internal investigation will need to interview Ms. Chu at length and review her email, documents, and data communications to determine the scope of her knowledge and involvement. Ms. Chu's continued employment at TMC is a positive factor for the defense, as she is available for interview and her data is accessible on TMC systems.
Thomas Eriksen — Regional Sales Manager (Western Region), U.S. Specialty Minerals Division. Mr. Eriksen attended certain NASMC quarterly conferences during the relevant period at which the DOJ suspects coordination occurred. His role in the alleged conduct is unclear at this time. It is not yet known whether Eriksen participated in or was aware of the side meetings allegedly held at NASMC conferences. The internal investigation will need to interview Mr. Eriksen and review his conference-related communications, expense reports, and calendar entries to determine his level of involvement or awareness. Mr. Eriksen is currently employed by TMC.
F. Status of Cascade's Cooperation
Cascade Chemical Supply Co. has been cooperating with the DOJ since approximately September 2021, providing both documents and testimony in support of the investigation. Cascade's cooperation is believed to have triggered the broader investigation and to form the foundation of the DOJ's case. The specific documents and testimony provided by Cascade are not yet known to us, but we anticipate that Cascade's disclosures include:
(i) Pricing records and correspondence demonstrating coordinated price increases across multiple producers;
(ii) Customer-account information suggesting patterns of customer allocation;
(iii) Bid documentation reflecting complementary or non-competitive bids from one or more of the three producers;
(iv) Communications between Cascade personnel and the sales teams at TMC, Ridgecrest, and Pinnacle, including communications that may reference or allude to coordination among producers; and
(v) Testimony from Cascade employees, potentially including Leonard Massey (President), regarding conversations with or observations of coordination among producer personnel.
The scope and strength of Cascade's cooperation will significantly influence the DOJ's ability to prove the conspiracy and will be a critical factor in TMC's defense strategy and penalty exposure. As the investigation progresses, we will seek to learn more about Cascade's cooperation through discovery, DOJ disclosures, and our own analysis.
VI. Legal Framework
A. Section 1 of the Sherman Antitrust Act (15 U.S.C. § 1)
The cornerstone of the DOJ's investigation is Section 1 of the Sherman Antitrust Act, which provides:
"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."
Section 1 criminalizes agreements, combinations, or conspiracies in restraint of trade. The statute requires proof of (1) an agreement (2) among two or more parties (3) that unreasonably restrains trade (4) in or affecting interstate or foreign commerce.
Critically, the three categories of conduct alleged in this investigation — price-fixing, customer allocation, and bid-rigging — are treated as per se violations of Section 1. Under the per se rule, these categories of horizontal agreements among competitors are deemed inherently anticompetitive and are conclusively presumed to be unreasonable restraints of trade. No rule-of-reason analysis is required; the government need not prove that the agreement actually harmed competition or consumers, only that the agreement existed. This is a significant advantage for the prosecution and a corresponding challenge for the defense: if the government can prove the existence of the agreement, liability follows automatically.
The criminal penalties under Section 1, as amended by the Antitrust Criminal Penalty Enhancement and Reform Act of 2004, are severe:
• Corporations: Fines of up to USD 100 million per count. Alternatively, under the alternative-fine provision of 18 U.S.C. § 3571(d), the court may impose a fine of up to twice the gross gain derived from the offense or twice the gross loss caused to victims, if either amount is greater than the statutory maximum. In cartel cases involving substantial affected commerce, the alternative-fine provision can result in penalties far exceeding the USD 100 million statutory cap.
• Individuals: Imprisonment of up to 10 years per count and fines of up to USD 1 million per count (or alternative fines under 18 U.S.C. § 3571(d)).
B. DOJ Antitrust Division Criminal Enforcement Policies
The Antitrust Division prioritizes the prosecution of "hard core" cartel conduct — namely, price-fixing, market allocation, and bid-rigging. These offenses are the Division's primary criminal-enforcement focus, and the Division devotes substantial investigative resources to detecting, investigating, and prosecuting such conduct.
The Division employs the federal grand jury process as its principal investigative tool. Grand jury subpoenas are used to compel the production of documents and the testimony of witnesses. The grand jury can issue indictments if it finds probable cause to believe that a federal offense has been committed. The grand jury proceedings are conducted in secret, and the rules of evidence do not apply in grand jury proceedings with the same rigor as at trial.
A critical concept in DOJ antitrust investigations is the distinction between targets and subjects:
• A target is a person as to whom the prosecutor or the grand jury has substantial evidence linking the person to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant. The issuance of a target letter is a significant escalation and indicates that the DOJ is seriously considering criminal charges.
• A subject is a person whose conduct is within the scope of the grand jury's investigation. Being a subject indicates that the DOJ is investigating the person's conduct but has not yet concluded that it has sufficient evidence for prosecution.
As of February 20, 2022, TMC has received only a grand jury subpoena and has not received a target letter. Ridgecrest, by contrast, has received a target letter (dated approximately January 12, 2022). TMC's current status as a subject, rather than a target, provides a strategic opportunity: if TMC moves quickly to cooperate, it may be able to avoid or mitigate the most severe consequences of the investigation.
C. DOJ Leniency Program (Antitrust Division Corporate Leniency Policy)
The DOJ Antitrust Division's Corporate Leniency Policy provides that the first company to report cartel activity to the Division and to cooperate fully with the investigation may receive full immunity from criminal prosecution. The leniency program is a cornerstone of the Division's enforcement strategy and is designed to incentivize early self-reporting of cartel conduct.
In this case, Cascade Chemical Supply Co. appears to have secured a cooperation agreement with the DOJ on or about September 15, 2021. While it is not certain that Cascade has received full leniency (as opposed to substantial cooperation credit), Cascade's early cooperation strongly suggests that it is the first entity to have approached the DOJ. If Cascade has received full leniency, then full leniency is not available to TMC, as the policy extends immunity only to the first qualifying applicant.
Notwithstanding the unavailability of full leniency, TMC may still benefit from the Division's policies regarding cooperation credit for subsequent cooperators. The Antitrust Division has consistently recognized that companies that cooperate substantially with the investigation — even if they are not the first to report — are eligible for significant credit in the form of reduced penalties, non-prosecution agreements, or deferred prosecution agreements. The extent of the cooperation credit available to TMC will depend on the timeliness, completeness, and quality of TMC's cooperation.
D. Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs)
In cases where a corporation cooperates substantially but does not qualify for full leniency under the Corporate Leniency Policy, the DOJ may offer a non-prosecution agreement ("NPA") or a deferred prosecution agreement ("DPA") as an alternative to indictment.
An NPA is an agreement between the DOJ and the corporation under which the DOJ agrees not to bring criminal charges in exchange for the corporation's satisfaction of specified conditions. A DPA is similar, but involves the filing of charges that are held in abeyance and ultimately dismissed upon the corporation's successful completion of the agreement's terms. Both instruments typically include the following elements:
(i) A monetary payment (fine), typically calculated on the basis of the affected commerce;
(ii) Comprehensive cooperation obligations, including continued document production, witness availability, and voluntary disclosure of relevant facts;
(iii) Compliance enhancements, including the design and implementation of an enhanced antitrust compliance program;
(iv) The appointment of a compliance monitor for a specified period (typically two to three years); and
(v) An agreed statement of facts setting forth the corporation's admissions regarding the conduct.
The monetary penalty in an NPA or DPA is typically calculated starting from a base of 20% of the volume of affected commerce attributable to the corporation. This 20% figure is a starting point derived from the United States Sentencing Guidelines' organizational-fines provisions and the Antitrust Division's standard penalty-calculation methodology. Adjustments may be made upward or downward based on cooperation, remediation, culpability factors, prior history, the quality and timeliness of the cooperation, and other aggravating or mitigating circumstances.
TMC should seriously consider pursuing an early and proactive cooperation strategy aimed at securing an NPA. An NPA would allow TMC to resolve the investigation without a criminal indictment, which would avoid the most severe collateral consequences (including potential debarment, loss of business licenses, and the devastating reputational impact of a criminal conviction). The monetary penalty, while substantial, would be more manageable and more predictable than the outcome of a contested criminal proceeding.
E. Grand Jury Subpoena Compliance
Under Federal Rule of Criminal Procedure 17, TMC is obligated to comply with the grand jury subpoena and to produce all responsive, non-privileged documents within its possession, custody, or control. Failure to comply with a grand jury subpoena may result in a finding of contempt and the imposition of sanctions.
Several privilege and protection issues will arise in connection with the document production:
Attorney-Client Privilege. Communications between TMC personnel and counsel (both in-house and outside counsel) for the purpose of seeking or providing legal advice are protected by the attorney-client privilege and need not be produced in response to the subpoena.
Attorney Work-Product Doctrine. Documents and materials prepared by or at the direction of counsel in anticipation of litigation or for the purpose of rendering legal advice are protected by the work-product doctrine. This includes, notably, the present memorandum and all work product generated by Calderwood & Harkness in connection with this engagement.
Fifth Amendment Privilege. The Fifth Amendment privilege against self-incrimination is available to individuals but is generally not available to corporations. TMC, as a corporation, cannot refuse to produce documents on Fifth Amendment grounds. However, individual TMC employees may assert the Fifth Amendment in connection with compelled testimony before the grand jury.
FRE 502(d) Protective Order. We recommend seeking a Federal Rule of Evidence 502(d) protective order from the court overseeing the grand jury. A Rule 502(d) order provides that the inadvertent production of a privileged document in the course of a federal proceeding does not constitute a waiver of the privilege as to that document or the subject matter of that document. Such an order provides an important safeguard given the volume of documents likely to be collected and reviewed in this matter, reducing the risk that an inadvertent production could result in a broad subject-matter waiver of the attorney-client privilege.
F. Extraterritorial Jurisdiction Considerations
TMC is a Canadian corporation organized under the Canada Business Corporations Act. The question of whether the Sherman Act applies to the conduct of a foreign entity is governed by the Foreign Trade Antitrust Improvements Act of 1982 ("FTAIA"), 15 U.S.C. § 6a. Under the FTAIA, the Sherman Act applies to foreign conduct that has a "direct, substantial, and reasonably foreseeable effect" on U.S. domestic commerce or on the export commerce of a person engaged in such commerce in the United States.
In this case, extraterritorial jurisdiction is likely not a viable defense for TMC. The alleged conduct concerns U.S. sales of specialty minerals to U.S. customers by TMC's U.S. subsidiary (TMC US), which operates within the United States. The affected commerce — estimated at USD 1.34 billion — consists entirely of U.S. sales. TMC's U.S. subsidiary is the entity that made these sales and is subject to U.S. jurisdiction. Moreover, the alleged conspiracy had a direct, substantial, and reasonably foreseeable effect on U.S. domestic commerce, as it involved the fixing of prices paid by U.S. customers.
TMC's Canadian domicile does raise ancillary considerations. The Canadian Competition Act may also be implicated by the alleged conduct, and the Canadian Competition Bureau may open a parallel inquiry. However, the primary enforcement action is in the United States, and the defense team should focus its resources accordingly. To the extent that Canadian law considerations arise — including potential Competition Bureau inquiries, cross-border discovery issues, or mutual legal assistance requests — we will coordinate with Canadian counsel as needed.
G. Potential Exposure — Preliminary Assessment
Based on the information available at this early stage, we have prepared a preliminary assessment of TMC's financial exposure:
Criminal Fine Exposure. The DOJ's standard methodology for calculating criminal fines in cartel cases begins with a base of 20% of the volume of affected commerce. Applying this methodology:
• TMC's share of affected commerce: USD 478 million
• 20% starting point: USD 95.6 million
• With potential cooperation credits and mitigating adjustments, the penalty could be reduced significantly from the 20% starting point
• Estimated range at this early stage: approximately USD 30 million to USD 65+ million, depending on the quality and timeliness of cooperation, the scope of TMC's culpability, compliance remediation efforts, and other mitigating and aggravating factors
Statutory Maximum. The statutory maximum fine is USD 100 million per count. However, under the alternative-fine provision of 18 U.S.C. § 3571(d), the fine could be up to twice the gross gain or twice the gross loss if that amount exceeds the statutory maximum. Given the scale of the affected commerce, the alternative-fine statute could theoretically expose TMC to fines well in excess of USD 100 million. In practice, the DOJ typically negotiates fines within its standard penalty-calculation framework rather than seeking the statutory maximum, particularly where the corporation cooperates.
Individual Exposure. Gavin Holt faces potential imprisonment of up to 10 years and individual fines of up to USD 1 million per count. Other TMC employees, including Sandra Chu and Thomas Eriksen, face exposure depending on their level of involvement in the alleged conduct. A key objective of the cooperation strategy is to protect current TMC employees from individual prosecution to the extent possible.
Collateral Consequences. Beyond the criminal fine, TMC faces significant collateral exposure, including:
• Follow-on civil litigation: Customers affected by the alleged price-fixing are likely to file class-action civil lawsuits under Section 4 of the Clayton Act (15 U.S.C. § 15), seeking treble damages. The exposure in follow-on civil litigation could substantially exceed the criminal fine.
• Debarment risk: If TMC sells products to U.S. government entities or prime government contractors, TMC may face debarment or suspension from government contracting.
• Reputational harm: The investigation and any resulting criminal charges or resolution will cause significant reputational harm to TMC, affecting its relationships with customers, suppliers, and business partners.
• Stock price impact: As a dual-listed public company, TMC's stock price is likely to be adversely affected when the investigation is publicly disclosed.
• Canadian Competition Bureau inquiry: The Canadian Competition Bureau may initiate a parallel investigation under the Canadian Competition Act, which criminalizes price-fixing and market-allocation agreements.
VII. TMC's Existing Antitrust Compliance Program
Based on preliminary information obtained from General Counsel Priya Anand, TMC adopted an antitrust compliance policy in approximately 2014. The policy was intended to educate TMC personnel on antitrust law, prohibit anticompetitive conduct, and establish protocols for competitor contacts and trade-association interactions.
However, our preliminary assessment indicates that the compliance program appears to have been inadequately maintained in the years since its adoption. Specifically:
• No annual antitrust training has been conducted since approximately 2018. A gap of approximately four years in antitrust training is a significant deficiency, particularly for a company with substantial U.S. operations in a concentrated industry. The DOJ will view the absence of regular training as evidence that TMC did not take compliance seriously.
• No monitoring of trade-association interactions or competitor contacts. TMC did not maintain a system for reviewing or monitoring the activities of its personnel at trade-association events, including NASMC conferences. There was no requirement for personnel to file reports after attending conferences or engaging in interactions with competitor personnel.
• No audit of competitor contacts by commercial personnel. TMC did not conduct periodic audits of communications between its commercial personnel and competitor personnel. Such audits are a standard component of effective antitrust compliance programs and are specifically identified by the DOJ as a best practice.
The deficiency in TMC's compliance program is a significant factor in the defense strategy for two reasons:
First, the DOJ may cite the inadequacy of the compliance program as an aggravating factor in assessing TMC's culpability and determining the appropriate penalty. The DOJ's Evaluation of Corporate Compliance Programs guidance document emphasizes the importance of effective compliance programs, and the absence of such a program may result in an upward adjustment in the penalty calculation.