PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT This memorandum and all attachments hereto are protected from disclosure by the attorney-client privilege and the work-product doctrine. This document was prepared by counsel for the purpose of providing legal advice to the client and reflects the mental impressions, conclusions, opinions, and legal theories of counsel. This document must not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
CALDERWOOD & HARKNESS LLP Attorneys at Law
555 California Street, 40th Floor San Francisco, California 94104 Telephone: (415) 555-8200 Facsimile: (415) 555-8201 www.calderwoodharkness.com
MEMORANDUM
Date: May 22, 2022
To: Søren Dalmqvist, Chief Executive Officer, Torchlight Mining Corp. Priya Anand, General Counsel, Torchlight Mining Corp.
From: Elaine Forsythe, Partner, Antitrust & Competition Practice Group, Calderwood & Harkness LLP
Re: Receipt of DOJ Antitrust Division Target Letter Dated May 20, 2022 — Legal Significance, Options, and Recommended Next Steps
C&H Matter No.: 1039-00001
I. Executive Summary
On May 20, 2022, Torchlight Mining Corp. ("TMC" or the "Company") received a target letter (the "Target Letter") from the Antitrust Division of the United States Department of Justice ("DOJ"), San Francisco Field Office, in connection with Grand Jury Investigation No. GJ-22-0194 (the "Investigation"), pending before the United States District Court for the Northern District of California, San Francisco Division. The Target Letter was delivered via certified mail to Calderwood & Harkness LLP in our capacity as TMC's outside counsel of record.
The Target Letter identifies TMC as a "target" of the grand jury investigation into suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector. The products at issue encompass high-purity feldspar, industrial talc, and rare-earth concentrates — three product lines that together constitute a significant portion of TMC's U.S. Specialty Minerals Division revenue.
The Target Letter was signed by Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves of the DOJ Antitrust Division, San Francisco Field Office. The letter indicates that the Investigation is being conducted under the supervision of Deputy Assistant Attorney General Julia Stafford-Hayes, who oversees criminal enforcement of the Sherman Act within the Antitrust Division. The involvement of a Deputy Assistant Attorney General at this stage underscores the seriousness with which the DOJ regards this matter.
This memorandum is prepared for the purpose of advising TMC's senior leadership regarding the legal significance of the Target Letter, the Company's potential criminal and financial exposure, the strategic options available to TMC, and our recommended next steps. It is intended to provide the information necessary for TMC to make informed decisions regarding its response strategy within a compressed timeline.
At the outset, we wish to emphasize several key points. First, the elevation of TMC's status from subpoena recipient and effective "subject" of the Investigation to a formal "target" is a significant but not wholly unexpected development given the trajectory of the Investigation over the past three months. Our analysis of the documents produced to date, together with our understanding of the cooperation being provided by Cascade Chemical Supply Co. ("Cascade Chemical"), led us to anticipate that this escalation was likely. Second, receipt of a target letter does not mean that indictment is inevitable. To the contrary, target letters in Antitrust Division investigations frequently serve as a precursor to a negotiated resolution — whether through a non-prosecution agreement ("NPA"), a deferred prosecution agreement ("DPA"), or, less favorably, a plea agreement. The Target Letter therefore opens a critical window for engagement with the DOJ to shape the outcome. Third, the quality and timeliness of TMC's response over the coming weeks will have a material impact on the Company's ability to secure a favorable resolution.
We strongly recommend that TMC pursue a strategy of proactive cooperation with the DOJ, aimed at securing maximum cooperation credit and, ultimately, an NPA or DPA. We request an opportunity to discuss this memorandum with Mr. Dalmqvist and Ms. Anand at the earliest possible opportunity to confirm the strategic direction and authorize the implementation of next steps described in Section VIII below.
II. Background and Procedural History
A. Opening of the Investigation
The DOJ Antitrust Division formally opened Grand Jury Investigation No. GJ-22-0194 on or about February 10, 2022. The Investigation is being conducted through the DOJ's San Francisco Field Office, which has jurisdiction over antitrust matters originating in the Western United States, and is proceeding before a grand jury empaneled in the Northern District of California, San Francisco Division.
Based on information obtained through our initial communications with the DOJ and through publicly available sources, the Investigation was triggered by a cooperation agreement entered into by Cascade Chemical Supply Co. ("Cascade Chemical"), a specialty chemical and industrial-minerals distributor headquartered in Spokane, Washington. Cascade Chemical is represented by the law firm of Whitfield, Strauss & Tully LLP, with partner Rebecca Ostrander serving as lead counsel. Cascade Chemical's president, Leonard Massey, is understood to have initiated contact with the DOJ in approximately September 2021, at which point Cascade Chemical entered into a cooperation agreement with the Antitrust Division.
Under the terms of its cooperation agreement — the precise details of which are not available to us but are consistent with standard DOJ Antitrust Division practice — Cascade Chemical provided the DOJ with documents, electronic communications, and testimony from its executives and employees, including testimony before the grand jury. It is our understanding that the information provided by Cascade Chemical formed the evidentiary foundation for the broader investigation and led directly to the issuance of subpoenas to TMC, Ridgecrest Minerals Inc. ("Ridgecrest"), and Pinnacle Earth Resources Ltd. ("Pinnacle"). Cascade Chemical's role as a cooperating witness entity means that it is likely to receive leniency — potentially full immunity from criminal prosecution — under the DOJ's Corporate Leniency Policy, provided it meets the conditions of that program. As the first party to approach the DOJ, Cascade Chemical's cooperation deprives TMC of access to the Leniency Program, which is available only to the first qualifying applicant.
B. TMC's Involvement to Date
TMC's involvement in the Investigation has proceeded through the following key events:
February 14, 2022: TMC received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 (the "Subpoena"), directed to the corporation, commanding the production of a broad range of documents and electronically stored information relating to the pricing, sale, and distribution of high-purity feldspar, industrial talc, and rare-earth concentrates in the United States for the period January 1, 2015 through the date of the Subpoena. The Subpoena identified twenty-three document categories, including pricing communications, customer lists, meeting agendas and notes, trade-association records, and internal communications among specified custodians.
February 18, 2022: TMC formally engaged Calderwood & Harkness LLP to serve as its outside counsel for all matters relating to the Investigation. The engagement letter was executed by Priya Anand on behalf of TMC and by the undersigned on behalf of Calderwood & Harkness.
March 1, 2022: Calderwood & Harkness issued a company-wide litigation hold notice (the "Litigation Hold") to all TMC employees identified as custodians or potential custodians of relevant documents and electronically stored information. The Litigation Hold was distributed to sixty-seven employees across TMC's U.S. Specialty Minerals Division, its corporate headquarters in Vancouver, British Columbia, and its regional sales offices. The Litigation Hold was accompanied by detailed instructions regarding document preservation obligations and was followed by acknowledgment forms, which have been returned by all but two identified custodians (both of whom are former employees who have since been contacted through alternative means).
March 4, 2022: TMC tendered notice of the Investigation to its directors' and officers' liability insurance carrier, Northland Mutual Insurance Co. ("Northland Mutual"), under Policy No. NMI-DO-2021-5547. The notice was tendered pursuant to the policy's notice provisions and identified the Investigation as a potential claim giving rise to defense costs and potential liability for individual directors and officers.
March 15, 2022: Calderwood & Harkness retained Redstone Digital Forensics Inc. ("Redstone"), a forensic data collection and e-discovery firm headquartered in McLean, Virginia, to manage the collection, processing, review, and production of electronically stored information responsive to the Subpoena. Neil Ashworth, a principal of Redstone with extensive experience in antitrust and government-investigation matters, was designated as the project director. Redstone has established a secure review platform and has processed approximately 1.4 million documents from twenty-two custodians to date.
March 28, 2022: TMC publicly disclosed the existence of the DOJ Investigation in its FY 2021 annual report, which was filed on SEDAR+ (the Canadian securities regulatory filing system) and with the U.S. Securities and Exchange Commission ("SEC") on Form 40-F. The disclosure was made in the "Legal Proceedings" and "Contingencies" sections of the annual report and noted that the Company was cooperating with the Investigation. In connection with this disclosure, TMC established a litigation reserve of USD 30 million, which was reflected in the audited financial statements included in the annual report. The reserve amount was developed in consultation with Calvert & Associates LLP ("Calvert"), TMC's independent auditor (engagement partner Daniel Moreau), and was based on preliminary estimates of potential exposure available at that time.
April 4, 2022: TMC made its first rolling production of documents to the DOJ in response to the Subpoena. This initial production comprised approximately 42,000 documents, consisting primarily of pricing memoranda, customer correspondence, and internal email communications from four key custodians. Additional rolling productions have been made on a biweekly basis since April 4, and document review and production remain ongoing.
April through May 2022: Calderwood & Harkness continued to conduct the internal investigation on a parallel track, including interviews of current TMC employees and review of produced documents. Communications with the DOJ during this period were primarily logistical, concerning document-production schedules and custodian identification. At no point during these communications did the DOJ advise us that TMC's status had changed from subject to target; the Target Letter dated May 20, 2022, was the first formal notification of the escalation.
C. Co-Subjects / Co-Targets
In addition to TMC and the cooperating entity Cascade Chemical, the Investigation encompasses at least two other companies that are believed to be targets or subjects:
Ridgecrest Minerals Inc. ("Ridgecrest"): Ridgecrest is a Delaware corporation headquartered in Denver, Colorado. It is a portfolio company of Marlowe Asset Management Peak Capital Partners LP, a private equity fund. Ridgecrest's Chief Executive Officer is Brian Novotny, and its Vice President of Sales is Carl Edgerton. We understand that Ridgecrest received a target letter from the DOJ on or about January 12, 2022 — approximately four months prior to TMC — making Ridgecrest one of the earliest identified targets in the Investigation. Ridgecrest is represented by Davenport, Kline & Archer LLP, with partner Helen Marchetti serving as lead counsel. We have had preliminary discussions with Ms. Marchetti regarding procedural matters but have not entered into a joint defense agreement, given the potential for divergent interests as discussed further below.
Pinnacle Earth Resources Ltd. ("Pinnacle"): Pinnacle is an Ontario corporation headquartered in Sudbury, Ontario, with U.S. operations based in Salt Lake City, Utah. Pinnacle's Chief Executive Officer is Douglas Harlowe, and its former Senior Vice President of Commercial Operations is Kevin Tsang. Pinnacle is represented by Ashford Whitmore LLP, with partner George Nakamura serving as lead counsel. Pinnacle's precise status in the Investigation — whether subject or target — is not confirmed from our perspective, though the involvement of its former SVP Kevin Tsang in the alleged communications suggests that it is likely a target as well.
The alleged conspiracy, as outlined in the Target Letter and as revealed through the document productions to date, appears to center on communications among three principal individuals: Gavin Holt (TMC), Carl Edgerton (Ridgecrest), and Kevin Tsang (Pinnacle). These three individuals held comparable positions within their respective companies and had extensive contact through industry trade events, particularly meetings of the North American Specialty Minerals Council ("NASMC"), as well as through direct electronic communications.
D. Key TMC Individual — Gavin Holt
Gavin Holt is TMC's former Vice President, U.S. Specialty Minerals Sales. Holt joined TMC in 2011 and was promoted to Vice President, U.S. Specialty Minerals Sales, in 2016. In this role, Holt led TMC's commercial pricing function for the U.S. Specialty Minerals Division, with direct authority over pricing decisions for high-purity feldspar, industrial talc, and rare-earth concentrates sold to U.S. industrial and chemical-manufacturing customers. Holt reported to the President of TMC's U.S. Specialty Minerals Division, Katherine Farrell, who in turn reported to the Chief Executive Officer.
Holt resigned from TMC effective September 30, 2021. His resignation occurred approximately four months before the grand jury investigation was formally opened and approximately one month after Cascade Chemical is believed to have entered into its cooperation agreement with the DOJ. The timing of Holt's departure has been a point of focus in our internal investigation, though we have not yet been able to determine whether Holt was aware of Cascade Chemical's approach to the DOJ at the time of his resignation.
Based on the documents reviewed to date in the internal investigation, Holt is the individual most directly implicated in the alleged pricing communications with counterparts at Ridgecrest (Carl Edgerton) and Pinnacle (Kevin Tsang). The documentary evidence includes electronic messages exchanged through the VaultChat messaging platform, emails sent from personal email accounts, and notes from meetings at NASMC conferences and other industry events. The substance of these communications — which we are continuing to analyze — includes discussions of upcoming price increases, customer allocation arrangements, and coordination on bid submissions for large-volume contracts.
As of the date of this memorandum, Holt has not yet retained separate personal counsel, although we anticipate that he will do so in the near term, particularly if the DOJ contacts him directly or issues a separate target letter addressed to him individually. Once Holt retains counsel, his interactions with TMC and with Calderwood & Harkness will necessarily be mediated through that counsel. We also anticipate that Holt may assert his Fifth Amendment privilege against self-incrimination, which would prevent TMC from compelling his testimony in the internal investigation and would limit his cooperation to any extent he voluntarily agrees to provide. The implications of Holt's anticipated posture are discussed further in Section VI below.
III. Legal Significance of the Target Letter
A. Definition of "Target" Under DOJ Policy
The DOJ's policies governing grand jury investigations, now codified in the Justice Manual (formerly the U.S. Attorneys' Manual), establish three categories of persons in relation to a grand jury investigation: targets, subjects, and witnesses. The relevant provision, Justice Manual § 9-11.151, defines these categories as follows:
A "target" is a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime, and who, in the judgment of the prosecutor, is a putative defendant. The designation of a person as a target represents a determination by the prosecuting attorneys that the evidence developed to date is sufficient to support a reasonable expectation of obtaining an indictment or securing a conviction.
A "subject" is a person whose conduct is within the scope of the grand jury's investigation. A subject occupies an intermediate position: the government is examining the subject's conduct but has not yet concluded that substantial evidence links the subject to a crime.
A "witness" is a person who has information relevant to the investigation but whose own conduct is not under scrutiny.
TMC's prior status was effectively that of a subpoena recipient and subject of the Investigation. The DOJ did not formally designate TMC as either a subject or a target when the Subpoena was issued in February 2022, but the scope of the Subpoena — which focused on TMC's pricing practices and inter-competitor communications — made clear that TMC's conduct was within the scope of the Investigation. The elevation from subject to target signals that, in the DOJ's judgment, the evidence developed over the intervening three months — including the information provided by Cascade Chemical, the documents produced by TMC, and any other investigative materials — is now considered "substantial" and that the DOJ regards TMC as a putative defendant.
It is important to note that the target designation applies to TMC as a corporate entity. The Target Letter does not address the status of any individual TMC employee or former employee. However, it is common practice for the DOJ to issue separate target letters to individuals at a later stage, and we anticipate that Gavin Holt, at a minimum, may receive an individual target letter.
B. What the Target Letter Communicates
The Target Letter, which is two pages in length and follows the standard form used by the Antitrust Division, communicates the following:
Notification of Target Status. The letter formally notifies TMC that it is a target of Grand Jury Investigation No. GJ-22-0194.
Nature of the Alleged Offenses. The letter states that the Investigation concerns suspected violations of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. Specifically, the DOJ alleges that TMC participated in agreements with competitors to fix prices, allocate customers and markets, and rig bids for high-purity feldspar, industrial talc, and rare-earth concentrates sold to industrial and chemical-manufacturing customers in the United States.
Alleged Conspiracy Period. The Target Letter identifies the alleged conspiracy period as spanning approximately January 2017 through August 2021. This is a period of approximately four years and eight months, which is significant for purposes of calculating the volume of affected commerce (discussed in Section IV.B below). The start date of January 2017 corresponds roughly to the period when Gavin Holt assumed his expanded pricing authority at TMC, while the end date of August 2021 corresponds to approximately one month before Holt's departure from the Company and approximately the time Cascade Chemical approached the DOJ.
Grand Jury Appearance Rights. The letter advises TMC that it has the right to appear before the grand jury, either through a corporate representative or through counsel, or to decline to appear. The letter cautions that any testimony given by a corporate representative before the grand jury could be used against the corporation and that the corporation, through its representative, retains the right to invoke the Fifth Amendment privilege against self-incrimination in connection with any testimony. As a practical matter, corporate targets almost never voluntarily appear before the grand jury; the risks of providing testimony in that setting far outweigh any potential benefits.
DOJ Contacts. The letter identifies Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves as the designated DOJ contacts for all communications relating to the Investigation.
C. What the Target Letter Does Not Mean
While the Target Letter is a serious development, it is important to understand its limitations:
A target letter is not an indictment. It does not constitute a formal criminal charge against TMC. No charges have been filed, no arraignment has been scheduled, and TMC has not been required to enter a plea. The Target Letter is a notification of status, not an accusation in a judicial proceeding.
Receipt of a target letter does not inevitably lead to prosecution. In the Antitrust Division's practice, a significant percentage of target letters are followed by negotiations that result in a resolution short of indictment. The DOJ Antitrust Division has a well-established and extensive practice of resolving corporate antitrust matters through NPAs, DPAs, and plea agreements. In recent years, the Division has increasingly favored NPAs and DPAs for corporate targets that demonstrate meaningful cooperation and remediation, reserving guilty pleas and trial for cases involving recalcitrant defendants or repeat offenders.
The target designation is not irrevocable. While it is uncommon, it is possible for a target to be reclassified as a subject or even a witness if the evidence shifts. More commonly, a target that cooperates fully may receive a resolution — such as an NPA — that effectively treats the target as a cooperating entity, notwithstanding the formal target designation.
The target letter does not foreclose negotiation. To the contrary, the issuance of a target letter is frequently the catalyst for substantive engagement between the target and the DOJ regarding a potential resolution. The DOJ's Antitrust Division expects and encourages defense counsel to reach out promptly following receipt of a target letter to discuss the path forward.
In sum, the Target Letter is best understood as a signal that the DOJ believes it has a strong case and is prepared to seek an indictment, but that a window exists for TMC to engage constructively and pursue a negotiated resolution. The size and duration of that window will depend on the quality and timeliness of TMC's response.
IV. Assessment of TMC's Potential Exposure
A. Criminal Exposure — Sherman Act Violations
Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, makes it a felony to enter into any contract, combination, or conspiracy in restraint of trade or commerce among the several states, or with foreign nations. The Supreme Court has long held that certain categories of agreements among competitors are so plainly anticompetitive that they are deemed illegal per se, without any inquiry into whether they unreasonably restrain trade. The three categories of conduct alleged in the Target Letter — price-fixing, customer/market allocation, and bid-rigging — are the paradigmatic per se violations of Section 1.
The per se nature of these offenses is critical because it means the DOJ need not prove that the alleged agreements were unreasonable or that they caused actual harm to competition. It is sufficient for the DOJ to prove that TMC entered into an agreement with one or more competitors to fix prices, allocate customers or markets, or rig bids. The existence of the agreement itself constitutes the violation. This significantly reduces the evidentiary burden on the government and correspondingly limits the available defenses at trial.
The criminal penalties for corporate violations of Section 1 are as follows:
Corporate Fines: A corporation convicted of violating Section 1 may be fined up to USD 100 million per offense. However, under the Alternative Fines Act, 18 U.S.C. § 3571(d), if the gain derived from the offense or the loss suffered by the victims exceeds USD 50 million, the court may impose a fine of up to twice the gain or twice the loss — whichever is greater. In large-scale price-fixing cases involving substantial volumes of affected commerce, fines under the Alternative Fines Act routinely exceed the statutory cap of USD 100 million.
Individual Penalties: An individual convicted of violating Section 1 may be sentenced to a term of imprisonment of up to ten years and fined up to USD 1 million per offense. The DOJ Antitrust Division has increasingly sought, and federal courts have increasingly imposed, significant prison sentences in cartel cases, with sentences ranging from twelve months to five years for senior executives.
In addition to fines and imprisonment, a Sherman Act conviction carries significant collateral consequences, including mandatory restitution in some circumstances, potential debarment from government contracts, and exposure to private treble-damage litigation.
B. Estimated Financial Exposure
Our preliminary analysis of TMC's potential financial exposure is based on the DOJ's standard approach to calculating antitrust penalties, which uses the volume of "affected commerce" — i.e., the total sales of the product(s) at issue during the conspiracy period — as the primary metric for determining fines.
Volume of Affected Commerce. Based on the documents reviewed to date and TMC's internal sales records, we estimate the following:
•  The DOJ's estimated total volume of affected commerce across all identified participants (TMC, Ridgecrest, and Pinnacle) during the alleged conspiracy period of January 2017 through August 2021 is approximately USD 1.34 billion.
•  TMC's estimated share of the total affected commerce is approximately USD 478 million, representing approximately 35.7% of the total. This figure reflects TMC's sales of high-purity feldspar, industrial talc, and rare-earth concentrates to U.S. industrial and chemical-manufacturing customers during the conspiracy period.
•  For context, TMC's U.S. Specialty Minerals Division generated approximately USD 687 million in total revenue in fiscal year 2021 alone. This division represents roughly 20% of TMC's consolidated revenue of approximately USD 3.38 billion (CAD 4.27 billion) for FY 2021. The affected-commerce figure of USD 478 million over the full conspiracy period reflects only those product lines and customer segments that fall within the scope of the alleged conspiracy, rather than the Division's total revenue.
DOJ Penalty Calculation Methodology. The DOJ Antitrust Division's standard approach to calculating fines in cartel cases uses the following framework:
•  The starting point for the fine calculation is typically 20% of the volume of affected commerce attributable to the defendant. For TMC, this yields a base fine of approximately USD 95.6 million (USD 478 million × 20%).
•  The base fine is then adjusted upward or downward based on aggravating and mitigating factors. The DOJ considers factors such as the defendant's role in the conspiracy (leader, organizer, or participant), the duration and scope of the conduct, whether the defendant has a prior history of antitrust violations, and — crucially — the quality and timeliness of the defendant's cooperation with the Investigation.
•  Cooperation credit can result in significant reductions. Under the DOJ's current policies, cooperation credit is assessed on a sliding scale. Companies that provide early, comprehensive, and proactive cooperation — including making witnesses available, completing thorough internal investigations, and sharing findings with the DOJ — may receive reductions of 25% to 50% or more from the base fine. In exceptional cases involving extraordinary cooperation, reductions exceeding 50% have been achieved.
Estimated Penalty Range. Applying the above framework, and assuming that TMC pursues a strategy of proactive cooperation as recommended in this memorandum, we estimate TMC's potential criminal fine in the range of approximately USD 45 million to USD 75 million. This range reflects a cooperation discount of approximately 20% to 50% from the base fine of USD 95.6 million, together with adjustments for mitigating factors (including the concentration of culpable conduct in a single former employee and the absence of prior antitrust violations by TMC). We emphasize that this range is preliminary and subject to significant refinement as the internal investigation progresses and as we engage in penalty negotiations with the DOJ.
Litigation Reserve. TMC's current litigation reserve stands at USD 30 million, which was established in March 2022 at a time when TMC's status was that of a subpoena recipient/subject rather than a target. In light of the Target Letter and the estimated penalty range described above, the litigation reserve may need to be increased in future quarters. We recommend that TMC coordinate with its independent auditor, Calvert & Associates LLP (engagement partner Daniel Moreau), regarding the adequacy of the reserve and any adjustments required under applicable accounting standards (ASC 450 for U.S. GAAP purposes, and IAS 37 to the extent relevant under IFRS). Given the sensitivity of this determination and its implications for TMC's financial reporting, this coordination should be undertaken promptly but need not be completed before the next quarterly filing.
C. Collateral Consequences
Beyond the direct criminal penalties, TMC faces a range of collateral consequences arising from the Investigation and any potential resolution:
Civil Treble-Damages Exposure. Section 4 of the Clayton Act, 15 U.S.C. § 15, provides that any person or entity injured by reason of a violation of the antitrust laws may recover threefold the damages sustained, plus costs of suit and reasonable attorneys' fees. A guilty plea or criminal conviction would establish liability as a matter of law in any subsequent civil action, leaving only the question of damages. Even in the absence of a criminal conviction — for example, if TMC resolves the matter through an NPA or DPA — private plaintiffs may still bring civil treble-damage suits, though they would bear the burden of proving liability independently. TMC's U.S. customers of high-purity feldspar, industrial talc, and rare-earth concentrates during the conspiracy period are the most likely potential plaintiffs. Direct purchaser class actions are common in the wake of Antitrust Division investigations. The potential civil exposure is substantial and difficult to quantify at this stage but could range from tens of millions to hundreds of millions of dollars depending on the extent of overcharges established in civil litigation.
Government-Contract Debarment. A criminal conviction for violation of the Sherman Act may result in mandatory or discretionary debarment from federal government contracts under the Federal Acquisition Regulation (FAR). While TMC's direct sales to the U.S. government are limited, certain TMC customers — including defense contractors and federally funded research institutions — may require TMC to certify that it has not been debarred. An NPA or DPA would typically avoid the triggering of debarment, which is a significant advantage of those resolution structures over a guilty plea.
Reputational Harm and Market-Price Impact. TMC is a publicly traded company listed on both the Toronto Stock Exchange (TSX: TRCL) and the New York Stock Exchange (NYSE: TMC). Any public disclosure of target-letter status, and certainly any indictment, would be expected to have a significant negative impact on TMC's share price and market valuation. Historical precedents in comparable cases suggest that initial disclosures of antitrust investigations can result in share-price declines of 5% to 15%, with further declines upon indictment. Coordination with TMC's financial advisor, Ironbridge Capital Markets Inc. (relationship partner Alan Kirkwood), regarding market-disclosure strategy and investor communications is advisable and should be prioritized.
Canadian Regulatory Implications. As a Canadian-domiciled corporation, TMC's conduct may also fall within the jurisdiction of the Competition Bureau of Canada, which has independent authority to investigate and prosecute cartel conduct under Part VI of the Competition Act (R.S.C. 1985, c. C-34). The Competition Bureau and the DOJ Antitrust Division maintain a close working relationship and frequently coordinate on cross-border cartel investigations. TMC should anticipate the possibility of a parallel Canadian investigation, which could result in additional fines and penalties. We recommend that TMC's Canadian counsel be consulted regarding the Competition Bureau risk, and we are prepared to coordinate with Canadian counsel as needed.
Impact on D&O Insurance. TMC tendered notice of the Investigation to Northland Mutual Insurance Co. ("Northland Mutual") under Policy No. NMI-DO-2021-5547 on March 4, 2022. The Northland Mutual policy provides an aggregate limit of liability of USD 50 million, subject to a retention of USD 2.5 million. Northland Mutual previously acknowledged coverage for defense costs incurred by individual directors and officers of TMC in connection with the Investigation but reserved its rights with respect to entity coverage and the applicability of the policy's regulatory-investigation and criminal-conduct exclusion. The escalation from subject to target status may affect Northland Mutual's coverage analysis, and we recommend supplementing the March 4 notice to inform the carrier of this development (discussed further in Section VIII.E below).
In addition to the Northland Mutual primary layer, TMC maintains excess D&O coverage through two additional carriers: Greystone Specialty Insurance Ltd. ("Greystone"), which provides a second layer of USD 25 million excess of USD 50 million, and Sentinel Re Ltd. ("Sentinel Re"), which provides a third layer of USD 25 million excess of USD 75 million. The aggregate tower limit is therefore USD 100 million. Notice should be provided to the excess-layer carriers as well, and coordination among all three carriers will be necessary as defense costs escalate.
D. Exposure of Individual TMC Employees
The Investigation poses varying levels of exposure to individual current and former TMC employees. Our assessment of the key individuals is as follows:
Gavin Holt (Former Vice President, U.S. Specialty Minerals Sales). As discussed in Section II.D above, Holt is the individual most directly implicated in the alleged pricing communications with counterparts at Ridgecrest (Carl Edgerton) and Pinnacle (Kevin Tsang). Based on the documents reviewed to date — including VaultChat messages, personal email correspondence, and internal pricing memoranda — Holt appears to have been the primary architect and executor of the alleged pricing coordination on TMC's side. We assess Holt's criminal exposure as high and anticipate that he is likely to be designated a target in his own right, if he has not been already. Holt's individual penalties, if convicted, could include imprisonment and substantial fines. The implications of Holt's status for TMC's strategy are discussed in Section VI below.
Sandra Chu (Director, Pricing Analytics). Chu is a current TMC employee who reported to Holt during the relevant period. Our review of documents and initial interview of Chu indicates that she received instructions from Holt on multiple occasions to adjust price lists and implement price increases according to specific parameters. However, we have not identified direct evidence that Chu was aware of the inter-competitor communications underlying those instructions — i.e., she appears to have implemented pricing changes that Holt directed without knowledge that the changes resulted from coordination with competitors. Chu's exposure is therefore lower than Holt's, but she must be carefully managed as a fact witness whose testimony could be significant in establishing the mechanics of the alleged price-fixing. We recommend completing a detailed follow-up interview with Chu at the earliest opportunity.
Thomas Eriksen (Regional Sales Manager, Western Region). Eriksen is a current TMC employee who attended four NASMC conferences during the conspiracy period — specifically, the annual meetings in 2017, 2018, 2019, and 2020 (the 2021 meeting was canceled due to COVID-19). Documents produced in the Investigation include references to "side meetings" or informal gatherings at these conferences at which pricing and customer allocation were allegedly discussed among representatives of TMC, Ridgecrest, and Pinnacle. Evidence of Eriksen's direct participation in these side meetings is ambiguous: certain documents reference his presence in the general vicinity, but no document directly attributes anticompetitive statements to Eriksen. In his preliminary interview, Eriksen denied knowledge of any agreements or discussions with competitors regarding pricing or customer allocation and stated that his attendance at NASMC conferences was limited to official sessions and social events. Eriksen's exposure remains uncertain; further investigation, including review of his electronic communications and a more detailed interview, is warranted.
C-Suite and Board Members. We have found no evidence to date that TMC's current Chief Executive Officer (Søren Dalmqvist), General Counsel (Priya Anand), Chief Financial Officer, or any member of the Board of Directors had knowledge of or authorized the alleged conduct. The documentary evidence reviewed to date suggests that the alleged pricing coordination was confined to the U.S. Specialty Minerals Division's commercial sales function and was conducted primarily by Holt without the knowledge or approval of senior leadership. This is a powerful mitigating factor in TMC's favor and will be an important element of any cooperation pitch to the DOJ. That said, the internal investigation is ongoing, and we cannot provide a definitive conclusion at this stage. We recommend that the internal investigation specifically address the question of senior-management knowledge as a priority.
V. TMC's Strategic Options
TMC faces four principal strategic options in responding to the Target Letter and the broader Investigation. We set forth each option below, together with our assessment of its advantages, disadvantages, and suitability.
A. Option 1: Proactive Cooperation with DOJ
Description. Under this option, TMC would pursue a strategy of proactive, comprehensive cooperation with the DOJ Antitrust Division. This would involve continuing and expanding the document production in response to the Subpoena; making current and former TMC employees available for proffer sessions and interviews with DOJ attorneys; completing the internal investigation on an accelerated timeline and sharing findings with the DOJ; and implementing compliance remediation measures, including enhancements to TMC's antitrust compliance program. The objective of this strategy would be to secure maximum cooperation credit in any resolution and to pursue a non-prosecution agreement ("NPA") or deferred prosecution agreement ("DPA") rather than face indictment and criminal conviction.
Objective. The central objective is to persuade the DOJ that TMC is a cooperative and responsible corporate actor that detected or acknowledged the wrongdoing, took prompt remedial action, and is committed to preventing recurrence. A successful cooperation strategy positions TMC to negotiate an NPA or DPA — the most favorable resolution structures available to a corporate target — while minimizing financial penalties and avoiding the severe collateral consequences associated with a guilty plea or conviction.
Advantages.
•  Significant reduction in monetary penalty. As discussed in Section IV.B above, cooperation credit can reduce the base fine by 25% to 50% or more. This translates to potential savings of tens of millions of dollars relative to the base fine calculation.
•  Avoidance of criminal conviction. An NPA or DPA is not a criminal conviction. TMC would not be required to plead guilty, and no judgment of conviction would be entered. This distinction is critical for purposes of civil treble-damage litigation, government-contract debarment, and reputational harm.
•  Avoidance of collateral consequences. Because an NPA or DPA does not constitute a conviction, many of the most severe collateral consequences — including mandatory debarment from government contracts and the establishment of liability in civil treble-damage actions — are avoided or significantly mitigated.
•  Favorable market perception. The financial markets and TMC's investors, customers, and business partners are likely to view a cooperative resolution as a sign of responsible corporate governance and a commitment to compliance. An NPA or DPA is typically received more favorably than a guilty plea.
•  Precedent in DOJ Antitrust Division practice. The Antitrust Division has entered into numerous NPAs and DPAs with corporate targets in recent years, including in cases involving comparable conduct. The availability of these resolution structures is well established, and the Division has articulated clear criteria for their use.
Disadvantages.
•  Significant legal and operational resources. Proactive cooperation requires a substantial commitment of time, money, and personnel. The internal investigation must be accelerated and expanded; key witnesses must be prepared for proffer sessions; document production must be completed on an aggressive timeline; and compliance remediation measures must be designed and implemented. The legal costs associated with this strategy are likely to be significant, though they are ultimately less than the costs of a contested prosecution.
•  Cooperation involves making witnesses available whose testimony could implicate former colleagues or reveal unfavorable facts. TMC's cooperation will necessarily involve providing the DOJ with access to witnesses and documents that may strengthen the government's case against Gavin Holt and potentially other individuals. While this is an inherent feature of cooperation, it may create tension with former employees and their counsel.
•  Potential waiver concerns. Cooperation may raise concerns about the potential waiver of attorney-client privilege or work-product protection. However, the DOJ's current policy, as articulated in the Justice Manual (JM § 9-28.710), expressly states that the DOJ does not require and will not request waiver of attorney-client privilege or work-product protection as a prerequisite for cooperation credit. TMC can provide factual information and make witnesses available without waiving privilege, provided that appropriate protocols are followed.
Assessment. We strongly recommend Option 1 as TMC's primary strategy. Given the strength of the evidence developed to date — including the cooperation of Cascade Chemical, the documentary record from the VaultChat messages and other electronic communications, and the pattern of pricing conduct reflected in TMC's internal records — a defensive or adversarial posture is unlikely to yield a better outcome and carries significantly greater risk. Proactive cooperation offers the best risk-adjusted outcome for TMC and is consistent with the Company's stated commitment to ethical conduct and corporate governance.
B. Option 2: Negotiate from a Defensive Posture
Description. Under this option, TMC would comply with its legal obligations under the Subpoena but would limit its voluntary cooperation with the DOJ. TMC would not proactively share the findings of its internal investigation, would not make witnesses voluntarily available for proffer sessions beyond what is legally required, and would adopt a more guarded posture in its communications with the DOJ. TMC would nonetheless remain open to negotiating a resolution and would explore the possibility of an NPA or DPA from a defensive position.
Advantages.
•  Preserves more control over information flow. By limiting voluntary disclosure, TMC would retain greater control over the information available to the DOJ and would avoid providing evidence that could be used against the Company or its former employees beyond what the DOJ can independently obtain.
•  May delay proceedings. A more measured pace of engagement may extend the timeline for resolution, which could provide TMC with additional time to assess the evidence and refine its strategy.
Disadvantages.
•  Forfeits cooperation credit. A defensive posture is fundamentally inconsistent with the DOJ's expectations for cooperation credit. TMC would likely receive little or no credit for cooperation, resulting in a substantially higher financial penalty.
•  Increases risk of indictment. The DOJ is more likely to proceed to indictment against a target that is perceived as uncooperative. An indictment, even if ultimately resolved through a plea agreement, carries far greater collateral consequences than an NPA or DPA.
•  Higher potential penalty. Without cooperation credit, TMC's financial exposure would remain at or near the base fine level of approximately USD 95.6 million, potentially exceeding USD 100 million with aggravating factors.
•  DOJ may view posture as obstructive. While TMC has a legal right to limit its cooperation, the DOJ may perceive a defensive posture — particularly following the Company's earlier representations of cooperation — as a signal that TMC is not acting in good faith. This perception could harden the DOJ's position and reduce the likelihood of a favorable resolution.
Assessment. We do not recommend Option 2. The evidence base is substantial and growing, particularly given Cascade Chemical's cooperation. A defensive posture is unlikely to change the DOJ's assessment of the case and would sacrifice the substantial benefits of cooperation credit.
C. Option 3: Contest and Prepare for Trial
Description. Under this option, TMC would assert its rights to the fullest extent, challenge the sufficiency of the DOJ's evidence, and prepare to defend itself at trial in the event of indictment. This would involve aggressive motion practice (including potential challenges to the scope of the grand jury subpoena, the sufficiency of the evidence, and the DOJ's interpretation of the relevant market), preparation for trial on the merits, and a willingness to take the case to a jury.
Advantages.
•  Forces DOJ to prove its case beyond a reasonable doubt. A contested trial requires the DOJ to present admissible evidence sufficient to convince a jury beyond a reasonable doubt that TMC entered into the alleged agreements. The burden of proof is on the government, and there are always risks for the prosecution in a trial setting.
•  May expose weaknesses in the government's case. The adversarial process may reveal evidentiary gaps, credibility issues with cooperating witnesses, or other weaknesses that are not apparent at the investigation stage.
Disadvantages.
•  Extremely costly. The legal costs associated with defending a federal antitrust prosecution through trial are substantial, typically running into the tens of millions of dollars for document review, expert witnesses, trial preparation, and the trial itself.
•  High risk of conviction. The DOJ Antitrust Division maintains a conviction rate exceeding 90% in contested criminal antitrust cases. The per se nature of horizontal price-fixing charges means that the government need not prove unreasonableness — only the existence of an agreement. The cooperating-witness evidence from Cascade Chemical, combined with the documentary record, would present a formidable case for the government at trial.
•  Collateral consequences of indictment alone. For a publicly traded company, the filing of criminal charges itself — even before conviction — triggers severe collateral consequences, including precipitous share-price declines, potential loss of customer and business-partner confidence, and heightened regulatory scrutiny. These consequences are difficult to reverse even if TMC were ultimately acquitted.
•  No cooperation credit. A contested posture forfeits all cooperation credit, resulting in maximum financial exposure if convicted.
Assessment. We do not recommend Option 3 as TMC's primary strategy. The risk-reward calculus strongly favors cooperation over confrontation in this matter. That said, we do recommend maintaining a credible level of trial preparedness as a subsidiary element of the overall strategy. A cooperating defendant that is visibly prepared for trial — and whose counsel is perceived as willing and able to try the case — negotiates from a stronger position than one that appears eager to capitulate. The maintenance of trial preparedness disciplines the DOJ to offer a fair resolution and provides a fallback if negotiations fail.
D. Option 4: Corporate Guilty Plea
Description. Under this option, TMC would negotiate a plea agreement with the DOJ under which it would plead guilty to one or more counts of violating Section 1 of the Sherman Act in exchange for a negotiated sentence, typically including a fine, a probationary period, compliance obligations, and cooperation requirements.
Advantages.
•  Resolves the matter definitively. A guilty plea brings the criminal matter to a conclusion, ending the uncertainty associated with an ongoing investigation or potential trial.
•  May achieve some credit for acceptance of responsibility. The U.S. Sentencing Guidelines provide for a reduction in offense level for defendants who clearly demonstrate acceptance of responsibility, including through timely entry of a guilty plea.
Disadvantages.
•  Criminal conviction carries the most severe collateral consequences. A guilty plea results in a criminal conviction, which triggers mandatory or discretionary debarment from government contracts, establishes liability in civil treble-damage actions as a matter of law, and inflicts the maximum reputational harm.
•  Typically results in higher financial penalties. Guilty pleas in Antitrust Division cases typically result in higher fines than NPAs or DPAs, because the latter resolution structures reflect the additional cooperation credit extended to companies that go beyond mere acceptance of responsibility.
•  Irreversible. A guilty plea, once entered and accepted by the court, cannot be withdrawn except in narrow circumstances. TMC would be bound by the conviction and all of its consequences.
Assessment. We do not recommend Option 4 at this stage. An NPA or DPA offers a far more favorable resolution for TMC, and there is no reason to conclude that such a resolution is unattainable given the mitigating factors available. A guilty plea should be considered only as a last resort — for example, if TMC's cooperation proves inadequate or if the DOJ determines that the facts do not warrant an NPA or DPA.
VI. Key Considerations Regarding Gavin Holt
The position of Gavin Holt requires careful attention and raises several interrelated issues that will affect TMC's strategy going forward.
Employment Status and Absence of Corporate Control. Holt is a former TMC employee who resigned effective September 30, 2021. As a former employee, Holt is not subject to TMC's direction or control. TMC cannot compel Holt to participate in the internal investigation, to submit to interviews by Calderwood & Harkness, or to cooperate with the DOJ. Any engagement with Holt must be voluntary on his part.
Anticipated Retention of Personal Counsel. As of the date of this memorandum, Holt has not yet retained separate personal counsel to represent him in connection with the Investigation. However, given the level of his apparent exposure and the likelihood that the DOJ will contact him directly or issue an individual target letter, we anticipate that Holt will retain personal counsel in the near term. Once Holt is represented, all communications between TMC (or Calderwood & Harkness) and Holt must be conducted through his attorney. We recommend that TMC refrain from direct contact with Holt regarding the Investigation pending his retention of counsel.
Fifth Amendment Privilege. We anticipate that, upon retaining counsel, Holt may assert his Fifth Amendment privilege against self-incrimination and decline to cooperate with both TMC's internal investigation and the DOJ's investigation. An assertion of Fifth Amendment privilege by Holt would prevent TMC from obtaining his testimony regarding the critical events and communications at the center of the Investigation. While this would be an unfortunate development for the internal investigation, it is well within Holt's constitutional rights and would not be unexpected given his level of exposure.
TMC's Cooperation and Its Implications for Holt. TMC's cooperation with the DOJ will necessarily involve providing evidence — documents, witness testimony, and internal-investigation findings — that may be used against Holt individually. This is an inherent consequence of cooperation and cannot be avoided. Any NPA or DPA that TMC negotiates with the DOJ is likely to include a "carve-out" provision preserving the DOJ's right to pursue criminal charges against individual employees, including Holt. TMC should be prepared for the reality that its cooperation may contribute to the prosecution of its former Vice President.
Conflict of Interest. The divergence between TMC's corporate interests and Holt's individual interests creates a clear conflict of interest that precludes TMC from representing, funding, or otherwise supporting Holt's personal defense. Calderwood & Harkness represents TMC as a corporate entity only and cannot represent Holt or any other individual TMC employee whose interests may be adverse to the Company's. This has been communicated to Holt in the form of an Upjohn warning during our initial contact with him, advising him that Calderwood & Harkness represents TMC, not him; that communications with Calderwood & Harkness are protected by TMC's privilege, not his; and that TMC may choose to disclose those communications to third parties, including the DOJ, at its discretion.
Joint Defense Agreement. In antitrust investigations, it is common for counsel to co-targets and co-subjects to enter into joint defense agreements ("JDAs") that facilitate the sharing of information under a common-interest privilege. The question of whether TMC should enter into a JDA with Holt's future counsel must be evaluated cautiously. On the one hand, a JDA could provide TMC with access to information from Holt that would be valuable for the internal investigation. On the other hand, TMC's and Holt's interests may be fundamentally divergent — TMC's cooperation strategy may require it to provide evidence against Holt, while Holt's defense strategy may require him to shift blame to TMC or to argue that his conduct was authorized by the Company. A JDA in these circumstances could create more complications than benefits, and we recommend that the decision be deferred until Holt's counsel is retained and the dynamics are clearer.
VII. Public Disclosure and Securities-Reporting Obligations
TMC is subject to continuous-disclosure obligations under both Canadian and U.S. securities law, and the receipt of the Target Letter must be evaluated in light of those obligations.
Prior Disclosure. TMC initially disclosed the existence of the DOJ Investigation in its FY 2021 annual report, filed on SEDAR+ and with the SEC on Form 40-F on March 28, 2022. The disclosure stated that TMC had received a grand jury subpoena, was cooperating with the Investigation, and had established a litigation reserve of USD 30 million. The disclosure did not, at that time, characterize TMC as a target, because TMC had not yet received the Target Letter.
Materiality of the Target Letter. The receipt of a target letter represents a material escalation of the Investigation. The elevation from subject/subpoena recipient to target signals that the DOJ has developed what it considers substantial evidence linking TMC to the alleged offenses and that TMC is a putative defendant. This development is likely to be considered material information for purposes of both Canadian and U.S. securities-disclosure requirements. Specifically:
•  Under Canadian securities law, National Instrument 51-102 — Continuous Disclosure Obligations requires reporting issuers to file material-change reports promptly upon the occurrence of a material change. A material change is defined as a change in the business, operations, or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of the issuer's securities. The receipt of a target letter, with its implications for TMC's potential criminal exposure and financial liabilities, may constitute a material change requiring the filing of a material-change report and the issuance of a press release.
•  Under U.S. securities law, TMC is registered with the SEC as a foreign private issuer and files on Form 40-F. TMC's disclosure obligations include the requirement to disclose material legal proceedings and contingencies in its periodic filings. Additionally, to the extent the target letter constitutes a material event, TMC may have obligations under Form 6-K to furnish a current report to the SEC.
Recommendation. We recommend that TMC disclose the receipt of the Target Letter in its next quarterly filing at a minimum and that TMC promptly evaluate whether a press release or material-change report is required under Canadian securities law prior to the next quarterly filing. The determination of whether and when to issue a press release or material-change report should be made in consultation with TMC's in-house disclosure counsel, its independent auditor (Calvert & Associates LLP, engagement partner Daniel Moreau), and its financial advisor (Ironbridge Capital Markets Inc., relationship partner Alan Kirkwood). The disclosure should be carefully drafted to accurately reflect the status of the Investigation, the Target Letter, and TMC's cooperation strategy, while avoiding any admission of wrongdoing or any characterization of the evidence that could be used against TMC in the criminal or civil proceedings.
Litigation Reserve. As noted in Section IV.B above, the current litigation reserve of USD 30 million may be insufficient in light of the estimated penalty range of USD 45 million to USD 75 million. The adequacy of the reserve should be reassessed in connection with each quarterly financial reporting cycle, and any increase should be coordinated with Calvert & Associates to ensure compliance with applicable accounting standards. We recommend that the reserve assessment be a standing agenda item for the Audit Committee going forward.
VIII. Recommended Immediate Next Steps
Based on the foregoing analysis, we recommend that TMC take the following actions on an expedited basis.
A. Strategic Decision
TMC should formally adopt Option 1 (Proactive Cooperation with DOJ) as its primary strategy for responding to the Target Letter and the Investigation. This strategy offers the best risk-adjusted outcome and positions TMC to pursue an NPA or DPA. We request a meeting or call with Søren Dalmqvist and Priya Anand at the earliest opportunity — ideally within the next five business days — to discuss this memo