PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT DO NOT DISCLOSE
MEMORANDUM
January 20, 2023
FROM: Elaine Forsythe, Partner, Antitrust & Competition Practice Group, Calderwood & Harkness LLP
TO: Board of Directors, Torchlight Mining Corp.
Attention: Margaret Caldwell, Board Chair
Janet Moreau-Shaw, Chair, Audit Committee
CC: Søren Dalmqvist, Chief Executive Officer Priya Anand, General Counsel
RE: Internal Investigation — Final Findings and Recommendations — DOJ Antitrust Division Grand Jury Investigation (Grand Jury No. GJ-22-0194, N.D. Cal.)
CALDERWOOD & HARKNESS MATTER NO.: 1039-00001
CONFIDENTIALITY NOTICE: This memorandum is protected by the attorney-client privilege and the work-product doctrine. It was prepared at the direction of counsel for the purpose of providing legal advice in connection with the above-referenced investigation. It contains confidential information regarding the legal strategy, factual findings, and recommendations of outside counsel in connection with a pending federal criminal investigation. This memorandum should not be disclosed to any third party — including, without limitation, any governmental authority, co-defendant, joint-venture partner, insurer, auditor, financial analyst, or member of the press — without the prior written authorization of Calderwood & Harkness LLP. Unauthorized disclosure may result in waiver of the attorney-client privilege and/or the protections of the work-product doctrine. Recipients are directed to maintain this memorandum in a secure, access-restricted location and to limit distribution to those individuals with a demonstrated need to know.
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I. EXECUTIVE SUMMARY
Calderwood & Harkness LLP ("Calderwood & Harkness" or "C&H") was retained by Torchlight Mining Corp. ("TMC" or the "Company") on February 18, 2022, to represent TMC in connection with a United States Department of Justice ("DOJ") Antitrust Division grand jury investigation (Grand Jury No. GJ-22-0194, United States District Court for the Northern District of California, San Francisco Division) into suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector. The investigation principally involves three product categories: high-purity feldspar, industrial talc, and rare-earth concentrates.
The DOJ investigation was formally opened on or about February 10, 2022. TMC received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 on February 14, 2022, compelling the production of extensive categories of documents relating to TMC's pricing, sales, and competitive practices in the specialty-minerals sector. On May 20, 2022, the DOJ elevated TMC's status from "subject" to "target" of the investigation by issuing a formal target letter to the Company.
Over the course of approximately ten months — from March 2022 through January 2023 — Calderwood & Harkness conducted a comprehensive internal investigation. The scope of that investigation encompassed: (i) the review of approximately 555,000 documents (comprising approximately 487,000 documents ultimately produced in response to the grand jury subpoena and approximately 68,000 additional documents gathered for internal review, analysis, and privilege assessment); (ii) interviews of 23 current and former TMC employees across multiple divisions and functions; and (iii) the retention of and analysis by two specialized consultancies — Hargrove Forensic Advisory LLC for economic and forensic pricing analysis, and Redstone Digital Forensics Inc. for electronic discovery, forensic data collection, and managed document review.
The principal findings of the internal investigation are summarized below:
1. Gavin Holt (Former VP, U.S. Specialty Minerals Sales). The investigation identified substantial documentary evidence that Gavin Holt, who served as Vice President of U.S. Specialty Minerals Sales from 2016 until his resignation effective September 30, 2021, engaged in direct pricing communications with counterparts at the two other companies under DOJ scrutiny — Carl Edgerton, Vice President of Sales at Ridgecrest Minerals Inc. ("Ridgecrest"), and Kevin Tsang, former Senior Vice President of Commercial Operations at Pinnacle Earth Resources Ltd. ("Pinnacle") — on at least 37 documented occasions between March 2017 and July 2021. These communications occurred primarily through the VaultChat encrypted messaging platform and addressed pricing strategies, customer allocation, and bid coordination. Economic analysis by Hargrove Forensic Advisory LLC confirmed statistically significant pricing correlations between TMC and its alleged co-conspirators during the relevant period that were absent in the periods immediately preceding and following the alleged conspiracy.
2. Sandra Chu (Director, Pricing Analytics). The investigation found that Sandra Chu, Director of Pricing Analytics in the U.S. Specialty Minerals Division, received instructions from Holt to adjust TMC's published price lists on at least 12 occasions during the conspiracy period that correlated with competitor price movements. However, the investigation identified no direct evidence that Chu was aware of the inter-competitor communications underlying those instructions. Chu stated during her interview that she understood the pricing directives to be based on Holt's assessment of market conditions and supply-demand dynamics.
3. Thomas Eriksen (Regional Sales Manager, Western Region). Eriksen attended four NASMC quarterly conferences during the conspiracy period at which DOJ suspects anticompetitive "side meetings" occurred. The evidence of Eriksen's direct participation in anticompetitive conduct is ambiguous. The document review did not identify any VaultChat messages or other direct communications implicating Eriksen, and Eriksen denied knowledge of any pricing agreements with competitors during his interview. His proximity to the alleged conduct, however, means that he may face continued DOJ scrutiny.
4. C-Suite and Board of Directors. The internal investigation found no evidence that TMC's senior executive management — including Chief Executive Officer Søren Dalmqvist, General Counsel Priya Anand, and Chief Financial Officer Richard Fong — or any member of the Board of Directors had knowledge of, authorized, or participated in the alleged anticompetitive conduct. The conduct appears to have been confined to the U.S. Specialty Minerals Division's commercial pricing function, led by Holt, without the knowledge or involvement of senior corporate leadership.
5. Compliance Program Deficiencies. TMC's existing antitrust compliance program, originally adopted in approximately 2014, was found to be materially inadequate. No annual antitrust training had been conducted since 2018 — meaning that no training occurred during a substantial portion of the alleged conspiracy period. The program included no mechanism for monitoring trade-association interactions, no system for auditing or logging competitor contacts, and no restrictions on the use of encrypted messaging platforms for business communications.
Based on these findings, Calderwood & Harkness makes the following principal recommendations:
(a) TMC should pursue full and continuing cooperation with the DOJ Antitrust Division and seek a non-prosecution agreement ("NPA") as the preferred resolution of the criminal investigation.
(b) TMC should promptly design and implement a comprehensive, enhanced antitrust compliance program to address the deficiencies identified by the internal investigation and to position TMC favorably in cooperation-credit and remediation discussions with the DOJ.
(c) TMC's Audit Committee and management should evaluate whether the Company's current litigation reserve of USD 30 million remains adequate in light of these findings and the estimated penalty exposure, and should consider an increase to approximately USD 50 million to reflect the midpoint of the estimated penalty range and anticipated professional fees.
The sections that follow set forth in detail the scope and methodology of the internal investigation, the background of the DOJ investigation, the factual findings regarding each key individual and the state of TMC's compliance program, the legal exposure analysis, and Calderwood & Harkness's specific recommendations and proposed timeline for next steps.
II. SCOPE AND METHODOLOGY OF THE INTERNAL INVESTIGATION
A. Engagement and Investigation Framework
Calderwood & Harkness was engaged by TMC on February 18, 2022, pursuant to an engagement letter executed by Priya Anand, General Counsel, on behalf of TMC, and by Howard Bellamy, Partner, Calderwood & Harkness (New York office), as billing partner for the engagement. The engagement letter provides for hourly billing at the following rates: Partners at USD 1,450 per hour; Senior Associates at USD 950 per hour; Associates at USD 725 per hour; and support staff (paralegals and litigation support specialists) at rates ranging from USD 350 to USD 550 per hour. The initial budget estimate for the internal investigation and grand jury defense phase was approximately USD 12 million, exclusive of expert fees and e-discovery vendor costs. The engagement letter further provides that Calderwood & Harkness's client is TMC as a corporate entity, acting through its Board of Directors, and that the attorney-client privilege belongs to and may be asserted or waived only by TMC.
On March 5, 2022, Calderwood & Harkness formalized the internal investigation plan in a privileged memorandum delivered to the Audit Committee. That plan established the investigation's scope — focusing on the U.S. Specialty Minerals Division's pricing practices, trade-association activities, and competitor contacts during the period from January 2015 through the present — as well as witness interview priorities, document review workflows, timelines for key deliverables, and protocols for reporting to the Board of Directors.
The investigation team has been led by the following Calderwood & Harkness attorneys:
• Elaine Forsythe — Partner, Antitrust & Competition Practice Group (San Francisco office); responsible partner for the investigation and grand jury defense.
• Howard Bellamy — Partner, Antitrust & Competition Practice Group (New York office); billing partner and strategic advisor.
• Aaron Liu — Lead Associate, Antitrust & Competition Practice Group (San Francisco office); day-to-day management of the investigation, including document review supervision, witness interview preparation, and expert coordination.
• Monica Reyes — Associate, Antitrust & Competition Practice Group (San Francisco office); document review, research, and witness interview support.
In addition to the core team listed above, Calderwood & Harkness engaged a team of approximately 15 additional associates and paralegals on a rotating basis to support the high-volume document review, as well as specialized technology-assisted review ("TAR") analysts from Calderwood & Harkness's Litigation Technology Group.
B. Document Collection and Review
1. Litigation Hold
On March 1, 2022, at Calderwood & Harkness's direction, TMC's General Counsel issued a company-wide litigation hold notice to all TMC personnel, instructing employees to preserve all documents — whether in electronic or hard-copy form — potentially relevant to the DOJ investigation, including but not limited to communications with competitors, pricing data, trade-association records, and customer correspondence. A separate, more targeted litigation hold was issued on the same date to personnel within the U.S. Specialty Minerals Division, identifying with greater specificity the categories of documents and data sources subject to the preservation obligation.
Calderwood & Harkness supervised the implementation of the litigation hold, including follow-up reminders issued on March 15, April 1, and May 1, 2022, and periodic compliance certifications collected from custodians and their supervisors.
2. Forensic Data Collection
Redstone Digital Forensics Inc. ("Redstone") was retained on March 15, 2022, to perform forensic data collection, processing, hosting, and managed document review. The Redstone engagement was managed by Project Director Neil Ashworth, with day-to-day coordination by Senior Project Manager Laura Chin. Redstone's scope of work included the following:
• Forensic imaging and collection of data from 34 identified custodians across TMC's U.S. and Canadian operations.
• Data sources collected included: (i) corporate email systems (Strathmore Data Systems / Outlook, including archived mailboxes and journaling archives); (ii) shared network drives maintained by the U.S. Specialty Minerals Division; (iii) VaultChat encrypted messaging archives (extracted with the cooperation of VaultChat Technologies Inc. pursuant to a third-party subpoena issued by the DOJ and subsequently made available to TMC for internal review); (iv) personal devices of identified custodians (laptops, mobile phones, and tablets), collected with consent; and (v) cloud storage accounts (Cobalt Ridge Systems, Aldermere Systems, and box) associated with identified custodians.
• Processing of collected data using Redstone's proprietary de-duplication, de-NISTing, and threading algorithms.
• Hosting of the processed document universe on Redstone's Relativity-based review platform.
• Managed first-pass review by Redstone's contract review team, supervised by Calderwood & Harkness attorneys.
3. Document Review Statistics
The total document universe collected, processed, and available for review comprised approximately 555,000 documents, representing over 3.2 million pages of material. Of this total:
• Approximately 487,000 documents were ultimately produced to the DOJ in response to Grand Jury Subpoena No. GJ-22-0194-SD-003. The first rolling production of approximately 42,000 documents was made on April 4, 2022. Additional rolling productions were made on a regular schedule from August 1, 2022, through December 15, 2022, bringing the cumulative production to approximately 487,000 documents.
• Approximately 68,000 additional documents were gathered and reviewed for internal investigation purposes — including documents identified as potentially privileged, documents relevant to the compliance program assessment, and documents gathered from non-custodial sources — but were not produced to the DOJ because they were either privileged, non-responsive to the subpoena, or fell outside its scope.
The document review was conducted in multiple phases. First-pass review was performed by a team of Redstone contract reviewers operating under detailed review protocols developed by Calderwood & Harkness. All documents flagged as potentially privileged, "hot" (i.e., directly relevant to the alleged conduct), or requiring escalation were subjected to second-pass review by Calderwood & Harkness associates and, where appropriate, partner-level review. Technology-assisted review tools — including predictive coding models trained on seed sets selected by Calderwood & Harkness attorneys — were deployed to supplement the manual review process, particularly for high-volume custodian collections.
4. Privilege Review Protocol
A privilege review protocol was established on March 10, 2022, and shared with the DOJ by agreement of the parties. The protocol set forth the standards for asserting attorney-client privilege and work-product protection, the procedures for escalating privilege determinations to senior attorneys, and the mechanism for clawback of inadvertently produced privileged materials pursuant to Federal Rule of Evidence 502(d). A stipulated FRE 502(d) order was entered by the court on April 15, 2022, providing that any inadvertent production of privileged documents would not constitute a waiver of privilege.
Privilege logs were prepared on a rolling basis and produced to the DOJ contemporaneously with the document productions. As of the date of this memorandum, the privilege logs encompass approximately 3,200 entries.
C. Witness Interviews
Calderwood & Harkness conducted interviews of 23 current and former TMC employees between approximately July 2022 and December 2022. All interviews were conducted under "Upjohn" warnings — i.e., each interviewee was advised at the outset that: (i) Calderwood & Harkness represents TMC as a corporate entity, not the individual employee; (ii) the interview was being conducted for the purpose of providing legal advice to TMC; (iii) the communications during the interview were protected by the attorney-client privilege, which belongs to TMC and may be waived by TMC at its discretion; and (iv) the individual should not discuss the substance of the interview with any third party, including other TMC employees, without the prior authorization of Calderwood & Harkness.
Detailed privileged memoranda were prepared for each interview and are maintained in the Calderwood & Harkness investigation file. The following summarizes the key witness interviews:
Sandra Chu — Director, Pricing Analytics, U.S. Specialty Minerals Division. Interviewed on July 18, 2022, at Calderwood & Harkness's San Francisco office. The interview lasted approximately three hours. Chu provided detailed testimony regarding her role in maintaining and adjusting TMC's published price lists and her interactions with Gavin Holt. The substance of Chu's testimony is discussed in Section V.B below.
Thomas Eriksen — Regional Sales Manager (Western Region), U.S. Specialty Minerals Division. Interviewed on July 22, 2022, at Calderwood & Harkness's San Francisco office. The interview lasted approximately two and a half hours. Eriksen addressed his attendance at NASMC conferences and his interactions with Ridgecrest and Pinnacle personnel at industry events. The substance of Eriksen's testimony is discussed in Section V.C below.
Gavin Holt — Former VP, U.S. Specialty Minerals Sales. Calderwood & Harkness attempted to arrange an interview with Holt as part of the internal investigation. On or about August 1, 2022, Calderwood & Harkness contacted Holt's personal counsel, Patrick Dunleavy of Briarcliff Law Group PLLC (San Francisco), to request Holt's voluntary participation. On August 5, 2022, Mr. Dunleavy formally declined the request, advising that Holt would not participate in any interview with TMC's counsel on the advice of personal counsel and in light of Holt's assertion of his Fifth Amendment privilege before the grand jury. This refusal was documented by Calderwood & Harkness in a contemporaneous memorandum.
Priya Anand — General Counsel, Torchlight Mining Corp. Interviewed on August 12, 2022, at TMC's Toronto headquarters. Anand provided testimony regarding her oversight of the initial document preservation efforts, the history and status of TMC's antitrust compliance program, and her lack of prior knowledge of the alleged conduct. The substance of Anand's testimony is referenced in Section VI.B below.
Richard Fong — Chief Financial Officer, Torchlight Mining Corp. Interviewed on August 19, 2022, at TMC's Toronto headquarters. Fong addressed his oversight of divisional financial performance, his review of U.S. Specialty Minerals Division results, and his lack of knowledge of inter-competitor pricing communications. The substance of Fong's testimony is referenced in Section VI.C below.
In addition to the five key interviews summarized above, Calderwood & Harkness conducted interviews of 18 additional current and former TMC employees, including sales representatives, marketing staff, pricing analysts, and administrative personnel within the U.S. Specialty Minerals Division, as well as select personnel from TMC's corporate headquarters in Toronto and its U.S. subsidiary's principal office in Reno, Nevada. A complete list of the 23 witnesses interviewed, including names, titles, and dates of interview, is set forth in Appendix 1 to this memorandum.
D. Expert Analysis
Hargrove Forensic Advisory LLC ("Hargrove") was retained on July 1, 2022, to perform economic and forensic analysis of pricing patterns in the North American specialty-minerals market and to assess the volume of commerce affected by the alleged conduct. The engagement was led by Dr. Vanessa Tremblay, Ph.D. (Economics, MIT), Engagement Partner at Hargrove, who brought to bear extensive experience in antitrust pricing analysis and DOJ cooperation matters.
Hargrove's work encompassed the following:
• Collection and analysis of TMC's transactional pricing data for the three product categories (high-purity feldspar, industrial talc, and rare-earth concentrates) from calendar years 2015 through 2022.
• Collection and analysis of publicly available pricing data for Ridgecrest and Pinnacle for the same product categories and time period, supplemented by pricing data obtained through the DOJ's document productions to TMC.
• Econometric regression analysis comparing TMC price movements to competitor price movements during the pre-conspiracy period (2015–2016), the alleged conspiracy period (January 2017–August 2021), and the post-conspiracy period (September 2021–2022).
• Estimation of the total volume of affected commerce for all alleged co-conspirators and for TMC individually.
The results of Hargrove's analysis were set forth in a joint Calderwood & Harkness / Hargrove pricing data analysis memorandum dated November 1, 2022 (the "Hargrove Memorandum"), which is summarized in Appendix 5 and referenced in relevant sections of this memorandum. The key findings of the Hargrove Memorandum are discussed in Section V.A below in connection with the pricing correlation analysis.
III. BACKGROUND: THE DOJ INVESTIGATION
A. Overview of the Investigation
The Antitrust Division of the United States Department of Justice, operating through its San Francisco Field Office, is conducting a grand jury investigation into suspected price-fixing, customer allocation, and bid-rigging in the North American specialty-minerals sector. The investigation is focused on the commercial practices of the three largest North American producers of high-purity feldspar, industrial talc, and rare-earth concentrates — TMC, Ridgecrest Minerals Inc., and Pinnacle Earth Resources Ltd. — and their alleged coordination of pricing and customer-allocation strategies for these products sold to U.S. industrial and chemical-manufacturing customers.
The lead prosecutors assigned to the matter are Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, both of the DOJ Antitrust Division's San Francisco Field Office. The matter is supervised by Deputy Assistant Attorney General Julia Stafford-Hayes in the Antitrust Division's Washington, D.C. headquarters. The grand jury is sitting in the United States District Court for the Northern District of California, San Francisco Division.
Calderwood & Harkness has had multiple interactions with the DOJ prosecution team since the commencement of the engagement, including an initial conference with ADAG Kowalski and Senior Trial Attorney Reeves on March 22, 2022, and subsequent conferences regarding the scope and timing of document productions. The tone of these interactions has been professional and constructive, and the DOJ has acknowledged TMC's cooperation efforts to date, though the DOJ has not made any commitments regarding the ultimate disposition of the case.
B. Genesis of the Investigation — Cascade Chemical Supply Co.
The DOJ investigation originated from the cooperation of Cascade Chemical Supply Co. ("Cascade"), a downstream distributor and processor of specialty minerals headquartered in Spokane, Washington. Cascade's President, Leonard Massey, entered into a cooperation agreement with the DOJ Antitrust Division on or about September 15, 2021, pursuant to which Cascade provided documents and testimony that triggered the broader investigation into upstream producers. Cascade is a significant customer of all three alleged co-conspirators — TMC, Ridgecrest, and Pinnacle — and Cascade's records and testimony apparently provided the DOJ with initial evidence of coordinated pricing behavior among the three producers.
Cascade is separately represented by Whitfield, Strauss & Tully LLP (Lead Partner: Rebecca Ostrander, Seattle office). Based on publicly available information and Calderwood & Harkness's interactions with the DOJ, Cascade appears to be the first-in cooperator under the DOJ's Leniency Program, which has significant implications for TMC's cooperation strategy, as discussed in Section IX below.
Calderwood & Harkness has not had direct contact with Cascade or its counsel and does not recommend seeking such contact given TMC's posture as a target of the investigation.
C. Co-Subjects / Co-Targets
The DOJ investigation is focused on three companies, in addition to the cooperating entity Cascade. The following summarizes the key information regarding the two other target companies:
1. Ridgecrest Minerals Inc.
Ridgecrest Minerals Inc. ("Ridgecrest") is a Delaware corporation headquartered in Denver, Colorado. Ridgecrest is the second-largest North American producer of high-purity feldspar and industrial talc, with fiscal year 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 firm that acquired a controlling interest in Ridgecrest in 2014. Ridgecrest's Chief Executive Officer is Brian Novotny. The key individual identified in the DOJ investigation is Carl Edgerton, Ridgecrest's Vice President of Sales, who is alleged to have been Gavin Holt's primary interlocutor in the pricing coordination.
Ridgecrest received a DOJ target letter on or about January 12, 2022 — approximately one month before TMC received its subpoena — suggesting that the DOJ's investigation of Ridgecrest may have commenced at an earlier stage, possibly as a direct result of the Cascade cooperation. Ridgecrest is separately represented by Davenport, Kline & Archer LLP (Lead Partner: Helen Marchetti, Denver office).
2. Pinnacle Earth Resources Ltd.
Pinnacle Earth Resources Ltd. ("Pinnacle") is a corporation organized under the laws of the Province of Ontario, Canada, headquartered in Sudbury, Ontario, with U.S. operations based in Salt Lake City, Utah. Pinnacle ranks among the top five North American producers of rare-earth concentrates and specialty industrial minerals, with fiscal year 2021 revenue of approximately CAD 1.45 billion (approximately USD 1.15 billion at prevailing exchange rates). Pinnacle's Chief Executive Officer is Douglas Harlowe. The key individual identified in the DOJ investigation is Kevin Tsang, Pinnacle's former Senior Vice President of Commercial Operations, who is alleged to have participated in pricing discussions with Holt and Edgerton.
Pinnacle is separately represented by Ashford Whitmore LLP (Lead Partner: George Nakamura, Toronto/New York offices). The timing and circumstances of Pinnacle's receipt of a target letter are not known to Calderwood & Harkness with certainty, though Calderwood & Harkness understands from its interactions with the DOJ that all three producers are being treated as targets.
D. TMC's Status in the Investigation
TMC's involvement in the DOJ investigation has progressed through the following stages:
February 14, 2022 — Grand Jury Subpoena. TMC received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003, requiring the production of an extensive range of documents relating to TMC's pricing, sales, marketing, and competitive practices in the specialty-minerals sector for the period from January 2015 to the present. The subpoena specified 27 document-request categories and identified 19 named individuals whose files were to be searched.
May 20, 2022 — Target Letter. TMC received a formal target letter from the DOJ Antitrust Division, signed by Senior Trial Attorney Marcus Reeves, informing TMC that its status in the investigation had been elevated from "subject" to "target." The target letter stated that TMC was a target of a federal grand jury investigation into violations of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, in connection with pricing, customer allocation, and bidding practices in the specialty-minerals industry. The receipt of the target letter was a significant development that prompted Calderwood & Harkness to accelerate the internal investigation timeline and to begin preparing for potential cooperation discussions.
For reference, the following is a summary of TMC's corporate and financial profile:
• Incorporation: TMC is incorporated under the Canada Business Corporations Act (Corporation No. 7841526-1), with its registered office at 200 Bay Street, Suite 3400, Toronto, Ontario M5J 2J2, Canada.
• U.S. Subsidiary: Torchlight Mining (U.S.) Inc. is TMC's wholly owned U.S. subsidiary, incorporated in the State of Nevada (Entity No. NV20160438721), with its principal office at 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117.
• Public Listings: TMC is listed on the Toronto Stock Exchange (ticker: TRCL) and the New York Stock Exchange (ticker: TMC).
• Federal Employer Identification Number: 83-2947106.
• Financial Profile (FY 2021): Consolidated revenue of approximately CAD 4.27 billion (approximately USD 3.38 billion at an average exchange rate of approximately 0.792 USD/CAD); consolidated EBITDA of approximately CAD 812 million.
• Operations: TMC operates 14 mines across Canada, the United States, Brazil, and Australia, and six downstream chemical-processing facilities.
• U.S. Specialty Minerals Division: The U.S. Specialty Minerals Division, which is the focus of the DOJ investigation, generated fiscal year 2021 revenue of approximately USD 687 million, representing approximately 20.3% of TMC's consolidated revenue.
IV. THE ALLEGED CONDUCT
A. Nature of the Allegations
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 TMC, Ridgecrest, and Pinnacle engaged in agreements to: (i) fix the prices of high-purity feldspar, industrial talc, and rare-earth concentrates sold to U.S. industrial and chemical-manufacturing customers; (ii) allocate customers among the three producers, including agreements to refrain from competing for certain customer accounts; and (iii) rig bids in response to requests for proposal issued by major customers.
These categories of conduct constitute per se violations of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. Under longstanding Supreme Court precedent, agreements among horizontal competitors to fix prices, allocate markets, or rig bids are treated as per se illegal — meaning that no defense based on the reasonableness of the agreed-upon prices or the competitive effects of the restraint is available. Criminal prosecution of such conduct under the Sherman Act carries potential penalties of up to USD 100 million in fines for corporate defendants (or, alternatively, twice the pecuniary gain derived from the offense or twice the pecuniary loss suffered by victims, whichever is greater, pursuant to 18 U.S.C. § 3571(d)) and imprisonment of up to ten years for individual defendants, along with fines of up to USD 1 million per individual.
The severity of the statutory penalties and the DOJ's aggressive posture in specialty-minerals cartel prosecutions underscore the importance of the cooperation strategy discussed in Sections IX and X below.
B. Alleged Mechanisms of Coordination
Based on the DOJ's subpoena specifications, the evidence gathered during the internal investigation, and Calderwood & Harkness's interactions with the DOJ prosecution team, the alleged coordination among TMC, Ridgecrest, and Pinnacle was carried out through three principal mechanisms:
(a) In-Person Meetings at NASMC Quarterly Conferences
The North American Specialty Minerals Council ("NASMC") is a trade association headquartered at 2300 Wilson Boulevard, Suite 400, Arlington, Virginia, that represents producers, distributors, and processors of specialty minerals across the United States and Canada. NASMC organizes quarterly industry conferences that bring together senior commercial and technical personnel from across the specialty-minerals sector for panel discussions, networking sessions, and educational programming.
The DOJ suspects — and Calderwood & Harkness's internal investigation has identified corroborating evidence — that anticompetitive "side meetings" occurred on the margins of NASMC quarterly conferences during the period from 2017 through 2021. These conferences were held at various locations, including Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida. The side meetings allegedly involved private discussions among Holt (TMC), Edgerton (Ridgecrest), and Tsang (Pinnacle) at which pricing strategies, customer allocations, and bidding approaches were agreed upon.
Calderwood & Harkness's analysis of NASMC conference attendance records and scheduling documents is set forth in a separate privileged memorandum dated October 10, 2022, which is summarized in Section V.D below.
(b) Encrypted Messaging via VaultChat Application
The primary channel of ongoing communication among the alleged participants was the VaultChat encrypted messaging application. VaultChat is a commercially available end-to-end encrypted messaging platform marketed to business users as a secure communications tool. The evidence gathered during the internal investigation indicates that Holt, Edgerton, and Tsang used VaultChat as their preferred method of communicating about pricing matters between in-person meetings.
The first documented VaultChat exchange between Holt and Edgerton occurred on March 14, 2017, and the last documented exchange occurred in July 2021. A total of at least 37 exchanges were identified, as discussed in detail in Section V.A below and catalogued in Appendix 4. The VaultChat messages were extracted from archived data on TMC's corporate systems and from the personal devices of identified custodians, with additional data obtained through the DOJ's third-party subpoena to VaultChat Technologies Inc.
(c) Occasional Phone Calls
The evidence suggests that the alleged participants also communicated periodically by telephone. However, this channel of communication is less well-documented than the VaultChat messaging, as TMC does not routinely record telephone calls and call-detail records provide only metadata (dates, times, and durations of calls) without substantive content. Call-detail records obtained during the investigation show a pattern of calls between Holt's TMC-issued mobile phone and numbers associated with Edgerton and Tsang during the conspiracy period, but the substance of these calls cannot be determined from available records.
C. Products and Market at Issue
The alleged conspiracy affected three product categories in the North American specialty-minerals market:
1. High-Purity Feldspar — A mineral used in ceramics, glass manufacturing, and specialty coatings. TMC, Ridgecrest, and Pinnacle are among the largest North American producers of high-purity feldspar.
2. Industrial Talc — A mineral used in paints, plastics, paper, and ceramics. TMC and Ridgecrest are the two largest North American producers of industrial talc.
3. Rare-Earth Concentrates — Mineral concentrates containing rare-earth elements used in electronics, magnets, and specialty alloys. Pinnacle is a leading North American producer, with TMC and Ridgecrest maintaining meaningful market positions.
The customers affected by the alleged conspiracy are U.S. industrial and chemical-manufacturing companies that purchase these minerals for use in downstream production processes. Major customers include manufacturers of ceramics, glass, paints, coatings, plastics, and electronics components, as well as distributors and processors such as Cascade Chemical Supply Co.
Based on Hargrove Forensic Advisory's affected-commerce analysis, the total volume of affected commerce across all three participants during the alleged conspiracy period (January 2017 through August 2021) is estimated at approximately USD 1.34 billion. TMC's share of the total affected commerce is estimated at approximately USD 478 million, representing approximately 35.7% of the total. These figures are derived from TMC's transactional sales data and publicly available financial data for Ridgecrest and Pinnacle, and are subject to refinement as additional information becomes available.
V. FINDINGS REGARDING KEY INDIVIDUALS
A. Gavin Holt — Former VP, U.S. Specialty Minerals Sales
1. Background. Gavin Holt joined TMC in 2012 as a Senior Sales Manager in the U.S. Specialty Minerals Division and was promoted to Vice President of U.S. Specialty Minerals Sales in 2016. In that capacity, Holt was responsible for leading TMC's commercial pricing function for the U.S. Specialty Minerals Division, including setting pricing strategy, directing the preparation of published price lists, overseeing customer negotiations, and managing the division's sales team of approximately 45 personnel.
Holt resigned from TMC effective September 30, 2021 — approximately four months before the DOJ formally opened its grand jury investigation and approximately four and a half months before TMC received its first grand jury subpoena. The circumstances of Holt's resignation were investigated during the internal investigation. Holt submitted a standard resignation letter citing personal reasons and a desire to pursue other opportunities. At the time, TMC was not aware of the DOJ investigation, and Holt's resignation did not trigger any compliance review or exit investigation. No separation agreement or post-employment cooperation obligation was executed.
2. Retention of Personal Counsel and Fifth Amendment Assertion
Upon learning of the DOJ investigation, Holt retained personal counsel — Patrick Dunleavy of Briarcliff Law Group PLLC, San Francisco — on or about June 10, 2022. On June 14, 2022, Holt appeared before the grand jury in the Northern District of California and asserted his privilege against self-incrimination under the Fifth Amendment to the United States Constitution, declining to testify. On August 5, 2022, Holt's counsel formally declined Calderwood & Harkness's request that Holt participate in a voluntary interview as part of the internal investigation, stating that Holt would not cooperate with TMC's investigation on the advice of counsel.
Holt's refusal to participate in the internal investigation and his assertion of the Fifth Amendment before the grand jury are significant. While these actions are within Holt's constitutional rights and no adverse inference may be drawn in a criminal proceeding, they limit the internal investigation's ability to obtain Holt's direct account of the events, to assess the full scope of his conduct, and to develop any exculpatory theories that might rely on Holt's testimony.
3. Documentary Evidence
The documentary evidence implicating Holt is the strongest of any individual examined during the internal investigation. The evidence is principally derived from the VaultChat messaging archives, supplemented by email records, pricing data, and calendar entries. The key findings are as follows:
(a) VaultChat Message Analysis. Calderwood & Harkness's analysis of the VaultChat messaging archives, set forth in a separate privileged memorandum dated September 15, 2022, identified at least 37 documented exchanges between Holt and Carl Edgerton (Ridgecrest) and/or Kevin Tsang (Pinnacle) between March 14, 2017, and July 2021. The messages were categorized by subject matter as follows:
• Pricing Information Exchanges (approximately 22 exchanges): Holt shared and received TMC's published price lists, proposed price increases, and pricing strategies for high-purity feldspar and industrial talc. In multiple exchanges, Holt communicated TMC's planned price increases in advance of their publication and received confirmation that Ridgecrest and/or Pinnacle would implement comparable increases within a similar timeframe. For example, in a VaultChat exchange dated June 3, 2018, Holt wrote to Edgerton: "We're taking feldspar up 6% on August 1. Can you match?" Edgerton responded the same day: "Should be doable. I'll confirm next week." Ridgecrest's published price list for high-purity feldspar was subsequently increased by approximately 5.8% effective August 15, 2018.
• Customer Allocation Discussions (approximately 10 exchanges): Communications between Holt, Edgerton, and/or Tsang regarding specific customer accounts and the allocation of supply contracts among the three producers. These exchanges included discussions about refraining from competing aggressively for particular customer accounts and about respecting each other's "incumbent" positions with specific customers. In one notable exchange dated September 12, 2019, Tsang wrote to Holt and Edgerton: "Cascade [Chemical Supply] is mine for rare earths. Don't undercut on the renewal." Holt responded: "Understood."
• Bid-Coordination signals (approximately 5 exchanges): Communications in advance of requests for proposal from major customers that suggest coordinated bidding behavior. These exchanges included discussions about pricing levels to be submitted in response to specific RFPs and, in at least two instances, agreements to submit deliberately non-competitive bids to ensure that a predetermined supplier would win the contract.
A complete summary of the 37 documented VaultChat exchanges, including dates, participants, and subject-matter categories, is set forth in Appendix 4.
(b) Pricing Correlation Analysis. The Hargrove Forensic Advisory / Calderwood & Harkness joint memorandum dated November 1, 2022 examined TMC's price movements in comparison with those of Ridgecrest and Pinnacle across the three product categories for the period from January 2015 through December 2022. The analysis employed econometric regression techniques to test for statistically significant correlations in pricing behavior.
The key findings of the pricing analysis were as follows:
• During the pre-conspiracy period (2015–2016), TMC's pricing movements showed moderate correlation with competitor pricing, consistent with normal competitive dynamics in a concentrated commodity market. The correlation coefficients ranged from approximately 0.35 to 0.52 across the three product categories, within the range expected for an oligopolistic market.
• During the alleged conspiracy period (January 2017 – August 2021), the correlation coefficients rose sharply to a range of approximately 0.87 to 0.94, indicating near-lockstep pricing behavior among the three producers. This level of correlation was statistically significant at the 99% confidence level and was not explained by common market factors (such as raw-material cost changes or demand fluctuations) that would account for correlated pricing in a competitive market.
• During the post-conspiracy period (September 2021 – 2022), after Holt's departure from TMC and the apparent cessation of the alleged coordination, the correlation coefficients declined to a range of approximately 0.38 to 0.48, returning to levels comparable to the pre-conspiracy period.
The sharp increase in pricing correlations during the conspiracy period and their return to baseline levels after the conspiracy's apparent cessation provide strong circumstantial evidence corroborating the documentary evidence from the VaultChat messages.
4. Assessment. Gavin Holt is the individual most directly and significantly implicated in the alleged anticompetitive conduct. The documentary evidence — comprising at least 37 VaultChat exchanges spanning more than four years — is substantial and covers all three categories of alleged violations (price-fixing, customer allocation, and bid-rigging). The pricing correlation analysis provides strong econometric corroboration.
Holt's refusal to cooperate with the internal investigation and his invocation of the Fifth Amendment before the grand jury prevent TMC from obtaining his direct account of the events and limit the Company's ability to develop exculpatory theories. At the same time, these actions, combined with the weight of the documentary evidence, reinforce the conclusion that Holt's individual conduct was the primary driver of TMC's involvement in the alleged conspiracy.
B. Sandra Chu — Director, Pricing Analytics, U.S. Specialty Minerals Division
1. Background. Sandra Chu joined TMC in 2013 as a Pricing Analyst in the U.S. Specialty Minerals Division and was promoted to Director of Pricing Analytics in 2017. In that capacity, Chu reported directly to Gavin Holt and was responsible for maintaining and adjusting TMC's published price lists for the U.S. Specialty Minerals Division, including the preparation of periodic price-list updates, the calculation of customer-specific pricing based on volume and contract terms, and the administration of the division's pricing database.
Chu remains a current TMC employee as of the date of this memorandum.
2. Interview Findings
Chu was interviewed by Calderwood & Harkness on July 18, 2022, at Calderwood & Harkness's San Francisco office. The interview lasted approximately three hours. The following summarizes the key testimony provided by Chu during the interview:
• Chu confirmed that she received instructions from Holt to adjust TMC's published price lists on at least 12 occasions during the period from approximately 2017 through 2021. These instructions were typically communicated by Holt in person or by email and directed Chu to increase or hold prices on specific product lines — primarily high-purity feldspar and industrial talc — at specific times.
• Chu stated that she understood these instructions to be based on Holt's assessment of market conditions, including supply-demand dynamics, raw-material cost trends, and competitive positioning. Chu stated that Holt did not explain the basis for his pricing directives in detail and that she did not question them, as Holt was her direct supervisor and the senior commercial decision-maker for the division.
• Chu denied any knowledge of communications between Holt and counterparts at Ridgecrest or Pinnacle. Chu stated that she had never heard of or been aware of any pricing discussions between TMC and its competitors. Chu stated that she did not have access to the VaultChat messaging application and had never used it.
• Chu confirmed that she did not attend any NASMC conferences and had no direct contact with personnel from Ridgecrest, Pinnacle, or any other competitor.
3. Correlation with Competitor Actions
Calderwood & Harkness's analysis of the 12 pricing adjustments identified by Chu confirmed that each of these adjustments correlated with similar or near-simultaneous price movements by Ridgecrest and/or Pinnacle. Specifically, in 10 of the 12 instances, the competitor price movement occurred within 30 days of TMC's adjustment — in some cases within days. This correlation is consistent with, and corroborates, the conclusion that Holt's pricing instructions to Chu were the product of his agreements with Edgerton and Tsang, rather than independent market assessments.
4. Knowledge of Inter-Competitor Communications
Despite the correlation between Chu's pricing adjustments and competitor behavior, the internal investigation identified no direct evidence that Chu knew of or suspected the inter-competitor communications that underlay Holt's instructions. Chu was not included in any VaultChat messaging group, did not receive copies of any communications between Holt and Edgerton or Tsang, and did not attend any NASMC conferences or other events at which the alleged side meetings occurred. Nothing in the document review — including Chu's email records, calendar entries, and personnel file — suggested awareness of the anticompetitive scheme.
5. Assessment. Based on the evidence reviewed, Sandra Chu appears to be a fact witness who executed pricing instructions from her supervisor without knowledge of their anticompetitive origin. There is no evidence of independent wrongdoing by Chu. While she was an unwitting instrument of the pricing coordination, her actions were consistent with normal execution of management directives in the ordinary course of business.
Calderwood & Harkness anticipates that the DOJ may seek to interview Chu as a fact witness regarding the pricing-adjustment process and the nature of her interactions with Holt. As discussed in Section X.A below, Calderwood & Harkness recommends making Chu available for a voluntary proffer session with the DOJ, subject to customary queen-for-a-day protections.
C. Thomas Eriksen — Regional Sales Manager (Western Region), U.S. Specialty Minerals Division
1. Background. Thomas Eriksen has served as Regional Sales Manager for the Western Region of TMC's U.S. Specialty Minerals Division since 2015. In that capacity, Eriksen is responsible for managing customer relationships and sales activities in the Western United States, including California, Oregon, Washington, Arizona, Nevada, and Utah. Eriksen reports to the Vice President of U.S. Specialty Minerals Sales (the position formerly held by Holt) and has a team of approximately eight sales representatives.
Eriksen remains a current TMC employee as of the date of this memorandum.
2. Conference Attendance
Calderwood & Harkness's analysis of NASMC conference attendance records confirmed that Eriksen attended four NASMC quarterly conferences during the alleged conspiracy period (2017–2021). These conferences were among those identified by the DOJ as events at which anticompetitive side meetings allegedly occurred. Eriksen's attendance at these conferences was documented in TMC's internal travel records, NASMC registration records, and Eriksen's own calendar entries.
3. Interview Findings
Eriksen was interviewed by Calderwood & Harkness on July 22, 2022, at Calderwood & Harkness's San Francisco office. The interview lasted approximately two and a half hours. The following summarizes the key testimony provided by Eriksen:
• Eriksen stated that he attended NASMC conferences for legitimate business purposes, including networking with customers, staying current on industry trends and regulatory developments, and gathering general market intelligence.
• Eriksen acknowledged meeting and speaking with representatives from Ridgecrest and Pinnacle — including Carl Edgerton and Kevin Tsang — at NASMC conferences. Eriksen described these interactions as brief, casual conversations at receptions, lunches, and panel discussions. He denied that any of these conversations involved pricing, customer allocation, or bidding strategies.
• Eriksen categorically denied knowledge of any pricing agreements or other anticompetitive arrangements between TMC and its competitors. He stated that he was not aware of any "side meetings" or private discussions involving Holt, Edgerton, or Tsang at NASMC conferences.
• Eriksen stated that he did not use the VaultChat messaging application and had no knowledge of its use by Holt or any other TMC employee for competitor communications.
4. Documentary Evidence
The document review did not identify any VaultChat messages to or from Eriksen. No emails or other documents directly implicate Eriksen in pricing coordination or any of the three categories of alleged conduct (price-fixing, customer allocation, or bid-rigging). However, certain NASMC conference attendance records and scheduling documents place Eriksen in proximity to — and contemporaneous with — the alleged side meetings. Specifically, scheduling records from two conferences indicate that Eriksen, Holt, Edgerton, and Tsang were all present at the same events during time periods when the VaultChat messages suggest coordination discussions were occurring.
5. Assessment. The evidence of Eriksen's direct participation in anticompetitive conduct is ambiguous. On one hand, his presence at four NASMC conferences where alleged coordination occurred raises questions, particularly given that Holt — the central figure in the alleged conspiracy — was also present at those events. On the other hand, the absence of any direct communications evidence (no VaultChat messages, no incriminating emails, no statements from other witnesses) and Eriksen's consistent denials during his interview leave his involvement uncertain.
Calderwood & Harkness is unable to conclude, on the basis of the available evidence, that Eriksen knowingly participated in the alleged conspiracy. Equally, his proximity to the events and individuals at the center of the alleged conduct means that the DOJ may subject him to continued scrutiny. As discussed in Section X.A below, Calderwood & Harkness recommends making Eriksen available for a voluntary proffer session with the DOJ to demonstrate TMC's cooperation and to address the DOJ's potential questions about Eriksen's conference attendance.
D. Trade Association Meeting Analysis
Calderwood & Harkness prepared a separate privileged memorandum, dated October 10, 2022, analyzing NASMC quarterly conferences attended by TMC personnel from 2017 to 2021. The analysis covered conference dates, locations, attendee lists (TMC and competitor personnel), published agendas, and available scheduling documents.
The analysis identified the following key conferences at which alleged coordination is suspected:
• Multiple quarterly conferences held at venues in Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida, at which Holt, Edgerton, and Tsang were all in attendance and during which VaultChat messages and/or pricing adjustments suggest that coordination discussions occurred.
• TMC personnel who attended NASMC conferences during this period included Gavin Holt (who was a regular attendee, typically attending three or four conferences per year) and Thomas Eriksen (who attended four conferences during the period, as noted above), as well as other TMC sales and marketing personnel who have not been identified as subjects of DOJ scrutiny.
• The timing of certain VaultChat exchanges — particularly those occurring within 24 to 48 hours before or after a conference — corroborates the inference that in-person side meetings at NASMC conferences served as a forum for initiating or confirming pricing and allocation agreements that were subsequently implemented through follow-up VaultChat communications.
The complete results of the trade-association meeting analysis are set forth in Appendix 6.
VI. FINDINGS REGARDING C-SUITE AND BOARD KNOWLEDGE
A critical question in any corporate antitrust investigation is whether senior management or the board of directors had knowledge of, authorized, or participated in the alleged conduct. The degree of C-suite involvement affects both the severity of potential sanctions and the viability of a cooperation-based resolution with the DOJ. The following sets forth the internal investigation's findings on this question.
A. CEO — Søren Dalmqvist
Søren Dalmqvist has served as TMC's Chief Executive Officer since 2015. In that capacity, Dalmqvist is responsible for overall corporate strategy, investor relations, and the supervision of TMC's global operations across its mining and chemical-processing divisions. Dalmqvist is based at TMC's corporate headquarters in Toronto and divides his time between Toronto and TMC's operations in Canada, the United States, Brazil, and Australia.
The internal investigation found no evidence — in documents, interviews, or the economic analysis — that Dalmqvist had knowledge of Holt's communications with Edgerton or Tsang, or of the alleged pricing coordination. Dalmqvist's oversight of the U.S. Specialty Minerals Division was conducted at a strategic level, focusing on divisional financial performance, market share, and capital allocation rather than day-to-day pricing decisions. Pricing authority for the U.S. Specialty Minerals Division was delegated to the divisional Vice President (Holt) and his team, consistent with TMC's general management structure. No emails, memoranda, or other documents suggest that Holt reported his competitor contacts to Dalmqvist or sought Dalmqvist's approval for the pricing adjustments at issue.
B. General Counsel — Priya Anand
Priya Anand has served as TMC's General Counsel since 2016. Anand was interviewed by Calderwood & Harkness on August 12, 2022, at TMC's Toronto headquarters.
Anand confirmed that upon learning of the grand jury subpoena in February 2022, she promptly supervised the issuance of the litigation hold notice and engaged outside counsel. Anand stated unequivocally that she had no prior knowledge of the alleged anticompetitive conduct, had never been informed of any communications between TMC personnel and competitors regarding pricing, and had not received any complaints or reports suggesting such conduct.
Anand provided the following account of the history of TMC's antitrust compliance program:
• The antitrust compliance policy was adopted in approximately 2014, during the tenure of Anand's predecessor as General Counsel.
• Annual antitrust training sessions were conducted from 2014 through 2018, typically in the form of one-hour presentations delivered to commercial and sales personnel by the General Counsel's office.
• No annual antitrust training was conducted after 2018. Anand attributed this lapse to budget constraints, competing legal and compliance priorities (including mine-safety and environmental regulatory matters), and the absence of a dedicated compliance officer or function within TMC's legal department.
• The compliance program did not include any mechanism for monitoring or pre-approving employee attendance at trade-association events such as NASMC conferences, nor any post-event reporting requirements.
• The compliance program did not include any system for logging or auditing contacts between TMC personnel and competitors, nor any restrictions on the use of encrypted messaging platforms.
Anand acknowledged that these deficiencies were significant and expressed regret that the compliance program had not been maintained and strengthened during the period in question.
C. CFO — Richard Fong