CALDERWOOD & HARKNESS LLP 555 California Street, 40th Floor San Francisco, California 94104 Telephone: (415) 555-7200
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT
January 5, 2023
VIA SECURE ELECTRONIC TRANSMISSION
Priya Anand, Esq. General Counsel Torchlight Mining Corp. 200 Bay Street, Suite 3400 Toronto, Ontario M5J 2J2 Canada
From: Elaine Forsythe, Partner, Antitrust & Competition Practice Group, Calderwood & Harkness LLP
Re: Quarterly Status Report — Q4 2022: DOJ Antitrust Division Grand Jury Investigation (Grand Jury No. GJ-22-0194, N.D. Cal.)
Calderwood & Harkness Matter No.: 1039-00001
Dear Priya:
This memorandum constitutes our quarterly status report for the fourth quarter of 2022 (October 1 through December 31, 2022) regarding the ongoing investigation by the Antitrust Division of the United States Department of Justice into suspected antitrust violations in the North American specialty-minerals sector. This report covers all material developments during the quarter, including the completion of the rolling document productions under the first grand jury subpoena, the progress and emerging findings of the internal investigation, the Audit Committee briefing, and the anticipated milestones for the first half of 2023. As with all prior communications in this matter, this memorandum is protected by the attorney-client privilege and the work-product doctrine and should be treated accordingly.
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I. Executive Summary
This quarterly report provides an update on developments during Q4 2022 in the DOJ Antitrust Division grand jury investigation into suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector, specifically involving high-purity feldspar, industrial talc, and rare-earth concentrates. The period covered is October 1 through December 31, 2022.
We are pleased to report significant progress during the quarter on three principal fronts:
First, Calderwood & Harkness completed the rolling document productions under the first grand jury subpoena (GJ-22-0194-SD-003) during Q4 2022. The final tranches were delivered to the DOJ on December 15, 2022, bringing the cumulative total to approximately 487,000 documents comprising approximately 3.2 million pages. The DOJ has not indicated any deficiencies in the productions to date, and this milestone represents a material step in demonstrating Torchlight Mining Corp.'s ("TMC's") cooperative posture.
Second, the internal investigation advanced materially during Q4 2022, with the completion of the VaultChat encrypted-message analysis and the pricing data analysis conducted jointly with our forensic economics consultants, Hargrove Forensic Advisory LLC. These workstreams have produced the most comprehensive evidentiary picture to date of the alleged coordination involving TMC's former Vice President of U.S. Specialty Minerals Sales, Gavin Holt. The analysis identified at least 37 documented exchanges between Holt and his counterparts at Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd. between March 2017 and July 2021, as well as statistically significant pricing correlations during the alleged conspiracy period that are materially different from pre- and post-conspiracy periods.
Third, Calderwood & Harkness is preparing for a comprehensive Board presentation of the internal investigation findings, scheduled for January 20, 2023. This presentation will seek the Board's authorization to proceed with the submission of a cooperation proffer to DOJ and to commence the design of an enhanced antitrust compliance program to address the significant deficiencies identified in TMC's existing program.
The current posture of the matter may be characterized as follows: TMC received a target letter from the DOJ on May 20, 2022, and has communicated its willingness to cooperate fully with the investigation. No indictment has been sought or obtained against TMC or any TMC employee, and the grand jury remains active. TMC's cooperation, as evidenced by the extensive document production and the ongoing internal investigation, positions the company to pursue a non-prosecution agreement ("NPA") with the DOJ, which remains our recommended resolution strategy.
This report should be read in conjunction with our prior Q2 2022 quarterly report dated July 15, 2022. As Priya is aware, no standalone Q3 2022 report was issued; instead, updates for Q3 were provided in connection with the Audit Committee briefing held on October 18, 2022, which is discussed in Section V of this report.
II. Case Background — Summary Recap
For reference and completeness, we provide the following summary of the case background, which was set forth in greater detail in our Q2 2022 report.
A. The Investigation
The investigation is being conducted by the Antitrust Division of the United States Department of Justice, operating through the San Francisco Field Office. The investigation is under the general supervision of Deputy Assistant Attorney General Julia Stafford-Hayes, with day-to-day prosecution led by Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves of the Antitrust Division's San Francisco office.
A grand jury was seated in the United States District Court for the Northern District of California, San Francisco Division, and assigned Grand Jury Number GJ-22-0194. The investigation was formally opened on or about February 10, 2022, though the underlying inquiry — initially focused on Cascade Chemical Supply Co. — appears to have commenced in the fall of 2021.
B. Alleged Conduct
The alleged conduct at the center of the investigation is price-fixing, customer allocation, and bid-rigging among senior commercial personnel at three companies operating in the North American specialty-minerals sector:
• Torchlight Mining Corp. ("TMC"): Gavin Holt, former Vice President, U.S. Specialty Minerals Sales. Holt resigned from TMC effective September 30, 2021, approximately two weeks after TMC first became aware of the DOJ's interest in the sector through news reports regarding Cascade Chemical Supply Co.'s cooperation agreement.
• Ridgecrest Minerals Inc. ("Ridgecrest"): Carl Edgerton, Vice President of Sales. Edgerton, to our knowledge, remains employed by Ridgecrest as of the date of this report.
• Pinnacle Earth Resources Ltd. ("Pinnacle"): Kevin Tsang, former Senior Vice President, Commercial Operations. Tsang's employment status with Pinnacle is not known to us with certainty, though public filings suggest he departed the company in early 2022.
The alleged conspiracy is believed to have operated from approximately January 2017 through August 2021, spanning a period of approximately four and a half years. The products at issue are high-purity feldspar, industrial talc, and rare-earth concentrates — all specialty minerals with relatively concentrated supplier bases in North America.
C. Alleged Channels of Coordination
Based on the information developed to date, including the internal investigation findings discussed in Section IV below, the alleged coordination was conducted through three principal channels:
1. In-person meetings at North American Specialty Minerals Council ("NASMC") quarterly conferences. The conferences identified as venues for alleged side meetings include events held in Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida during the 2017–2021 period.
2. Encrypted messaging via the VaultChat messaging platform. VaultChat is an encrypted communications application that was used by Holt and his counterparts to exchange messages regarding pricing, customer allocation, and bid coordination. The forensic recovery and analysis of these messages is discussed at length in Section IV.B below.
3. Occasional telephone calls between the alleged participants, the substance of which has been inferred from circumstantial evidence, including calendar entries, phone records, and contemporaneous notes.
D. Origin of the Investigation
The investigation originated from a cooperation agreement entered into by Cascade Chemical Supply Co. ("Cascade") with the DOJ in approximately September 2021. Cascade is represented by Whitfield, Strauss & Tully LLP, with partner Rebecca Ostrander serving as lead counsel. Cascade, a distributor and processor of specialty minerals, is understood to have provided documents and testimony to the DOJ that implicated Holt, Edgerton, and Tsang in the alleged conspiracy. Cascade's proactive cooperation with the DOJ triggered the broader investigation that ultimately led to the grand jury subpoena served on TMC.
E. Co-Subjects and Co-Targets
In addition to TMC, the following entities are co-subjects or co-targets of the investigation:
• Ridgecrest Minerals Inc.: Represented by Davenport, Kline & Archer LLP ("DKA"), with partner Helen Marchetti serving as lead counsel. Ridgecrest is understood to have received a target letter from the DOJ on or about January 12, 2022 — approximately four months prior to the target letter received by TMC.
• Pinnacle Earth Resources Ltd.: Represented by Ashford Whitmore LLP, with partner George Nakamura serving as lead counsel. Pinnacle's precise status in the investigation (i.e., subject versus target) is not known to us with certainty.
F. TMC's Engagement of Calderwood & Harkness
TMC received grand jury subpoena duces tecum GJ-22-0194-SD-003 on February 14, 2022. Calderwood & Harkness was engaged on February 18, 2022, pursuant to an engagement letter executed on that date. The initial budget estimate set forth in the engagement letter was USD 12 million, which, as discussed in Section X below, has been exceeded and will require a formal budget adjustment in Q1 2023.
III. Document Production — Status and Completion of First Subpoena Response
A. Rolling Productions During Q4 2022
Throughout Q4 2022, Calderwood & Harkness continued the rolling document productions to the DOJ that commenced on April 4, 2022. The Q4 2022 productions represented the final tranches of documents responsive to Subpoena GJ-22-0194-SD-003. The final production was delivered to the DOJ on December 15, 2022.
As of December 15, 2022, the cumulative total of documents produced to the DOJ stands at approximately 487,000 documents comprising approximately 3.2 million pages. To place this figure in context, the initial rolling production on April 4, 2022 comprised approximately 42,000 documents. Subsequent rolling productions were made on a regular basis throughout the spring, summer, and fall of 2022, with each production covering additional custodians and data sources as the managed-review process progressed.
All productions during Q4 2022 were made in accordance with the format and technical specifications agreed upon with the DOJ at the outset of the document-production process. Documents were produced in TIFF format with load files, extracted text, and associated metadata, consistent with the production specifications negotiated with Trial Attorney Kowalski in March 2022.
The completion of the first subpoena response is a significant milestone in this matter. It demonstrates TMC's commitment to full and timely cooperation with the DOJ and removes a potential source of friction in the relationship between TMC and the prosecution team.
B. Redstone Digital Forensics — Managed Review Status
Redstone Digital Forensics Inc. ("Redstone"), under the direction of Project Director Neil Ashworth (McLean, Virginia), has completed the processing and managed review of all data collected from the 34 identified custodians at TMC. The custodian list was finalized in consultation with the DOJ and includes current and former employees in the U.S. Specialty Minerals Division, select corporate officers, and certain support personnel identified through the iterative custodian-identification process.
The data sources processed and reviewed by Redstone include:
• Strathmore Data Systems email (all 34 custodians);
• Shared network drives (U.S. Specialty Minerals Division shared drives and select corporate shared drives);
• VaultChat message archives (forensically recovered from TMC-issued devices and, where available, backup servers);
• Personal mobile devices (select custodians, subject to consent and applicable privacy protocols); and
• Cloud storage repositories (Ashbury Holdings Cobalt Ridge Systems and Aldermere Systems instances associated with the identified custodians).
The review platform was hosted by Redstone, with document review conducted by a dedicated team of contract attorneys supervised by Calderwood & Harkness. The privilege review was conducted by Calderwood & Harkness reviewers under the Privilege Review Protocol established on March 10, 2022, which sets forth the criteria for identifying potentially privileged documents and the escalation procedures for borderline determinations.
All privilege-withheld documents have been cataloged on the Privilege Log accompanying each rolling production. The cumulative privilege log was updated through the final Q4 production on December 15, 2022, and now contains entries for all documents withheld on the basis of attorney-client privilege, work-product protection, or joint-defense privilege (the last category being minimal given the absence of any joint defense agreement, as discussed in Section VI.D below).
C. Privilege Review and Clawback
We are pleased to report that no clawback requests were received from the DOJ during Q4 2022 regarding any inadvertently produced privileged documents. The Federal Rule of Evidence 502(d) protective order that was entered by the Court earlier in 2022 remains in full force and effect and provides an important safeguard against the waiver of privilege with respect to any inadvertently produced documents. The absence of any clawback disputes to date reflects the rigor of the privilege review protocol and the quality of the managed-review process conducted by Redstone and Calderwood & Harkness.
With respect to Redstone's fees, we note that the total fees invoiced by Redstone through December 31, 2022 are approximately USD 1.9 million. The projected total for Redstone's engagement through matter close is approximately USD 2.3 million. The remaining fees relate primarily to final quality-control procedures, archival of the review database, and potential supplemental processing in the event of a second subpoena.
D. Outstanding Issues
The response to Subpoena GJ-22-0194-SD-003 is now substantially complete. All 34 custodians have been fully processed, reviewed, and produced. All responsive, non-privileged documents identified through the managed-review process have been delivered to the DOJ.
The DOJ has not indicated any deficiencies in the productions to date. Calderwood & Harkness has maintained an open line of communication with Trial Attorneys Kowalski and Reeves throughout the production process, and the prosecution team has not raised any concerns regarding the scope, format, or timeliness of the rolling productions.
Looking ahead, we anticipate the possibility that the DOJ may issue a supplemental or second subpoena in 2023 as the investigation continues to develop. Such a subpoena could seek documents from additional custodians, documents covering an expanded time period, or documents in categories not encompassed by the original subpoena. We will be prepared to respond promptly and cooperatively to any such supplemental request, consistent with TMC's overall cooperation strategy.
IV. Internal Investigation — Progress During Q4 2022
A. Overview of Investigation Scope
The internal investigation being conducted by Calderwood & Harkness on behalf of TMC encompasses a comprehensive review of all relevant documents and communications, as well as interviews of current and former TMC employees with potential knowledge of the alleged conduct.
The documentary review encompasses the approximately 487,000 documents produced to the DOJ to date, with focused analysis on the subset of documents most relevant to the alleged coordination — including the VaultChat messages, pricing communications, trade-association records, and customer-allocation documents. This document universe will grow if additional subpoena productions are required in 2023.
As of December 31, 2022, Calderwood & Harkness has conducted interviews of 23 current and former TMC employees. The interview program has covered all personnel identified as having potential knowledge of or involvement in the alleged conduct, ranging from senior executives to mid-level sales and pricing personnel in the U.S. Specialty Minerals Division.
In addition to the legal team's documentary and interview work, Calderwood & Harkness engaged Hargrove Forensic Advisory LLC ("Hargrove"), a forensic economics and accounting firm based in Chicago, Illinois, to conduct an economic analysis of pricing patterns and to assist in the assessment of affected-commerce volume. Hargrove was retained on July 1, 2022, with engagement partner Dr. Vanessa Tremblay leading the firm's work. Hargrove's analysis has been instrumental in identifying the statistical pricing anomalies during the alleged conspiracy period, as discussed in Section IV.C below.
The internal investigation is being led by the undersigned (Elaine Forsythe, Partner), with Aaron Liu (Lead Associate) and Monica Reyes (Working Associate) constituting the core Calderwood & Harkness team. Additional associates and support staff have been deployed as needed to support discrete workstreams.
B. VaultChat Message Analysis — Key Findings
The VaultChat message analysis represents the single most important workstream in the internal investigation and has produced the most significant category of direct evidence of inter-competitor coordination involving TMC personnel.
The analysis is documented in the VaultChat Message Analysis Memorandum dated September 15, 2022, prepared by Aaron Liu and Monica Reyes. While the memorandum was completed during Q3 2022, additional supplemental analysis was conducted during Q4 2022 to categorize and contextualize the identified communications for purposes of the upcoming Board presentation and cooperation proffer.
1. Forensic Recovery
The VaultChat encrypted-messaging platform was used by Gavin Holt (former VP, U.S. Specialty Minerals Sales, who resigned effective September 30, 2021) to communicate with his counterparts at Ridgecrest and Pinnacle. VaultChat is designed to provide end-to-end encryption and, in certain configurations, automatic message deletion after a specified period. However, forensic recovery efforts by Redstone Digital Forensics were able to extract VaultChat message archives from TMC-issued mobile devices assigned to Holt, as well as from backup data stored on TMC servers. These recovery efforts were facilitated by Holt's failure to manually purge certain device backups prior to his resignation.
2. Documented Exchanges
The analysis identified at least 37 documented exchanges between Holt and Carl Edgerton (Ridgecrest) and Kevin Tsang (Pinnacle) during the period from March 2017 through July 2021. The first documented VaultChat exchange is dated March 14, 2017, consisting of a message from Holt to Edgerton. The exchanges span the full duration of the alleged conspiracy period and include communications with both Edgerton and Tsang, as well as a smaller number of group exchanges involving all three individuals.
3. Categorization by Subject Matter
The 37 documented exchanges have been categorized by subject matter as follows:
• Pricing Discussions: Approximately 18 exchanges involve specific discussions of pricing levels, pricing strategies, or anticipated price movements for high-purity feldspar and industrial talc. These messages include references to specific price points, effective dates for price increases, and discussions regarding the coordination of pricing announcements to customers.
• Customer Allocation Discussions: Approximately 11 exchanges involve discussions regarding the allocation of specific customers or geographic territories among the participants. These messages include the identification of specific customers by name and references to agreements regarding which company would pursue or refrain from pursuing particular customer relationships.
• Bid-Coordination Discussions: Approximately 8 exchanges involve discussions regarding the coordination of bids for supply contracts, including discussions of bid amounts, cover bids, and the designation of intended winners for specific procurement opportunities.
4. Substantive Content
The substantive content of the VaultChat messages is highly incriminating. The messages include, among other things:
• Specific references to pricing levels for high-purity feldspar (including per-ton pricing for various grades) and industrial talc;
• Identification of specific customers to be allocated among the participants, including several of TMC's largest industrial customers;
• Coordination on bidding for supply contracts, including discussions in which Holt agreed to submit intentionally non-competitive bids to facilitate the award of contracts to Ridgecrest or Pinnacle; and
• Discussions reflecting an awareness of the illegality of the conduct, including references to the need for secrecy and admonitions to "keep this off email."
5. Assessment. The VaultChat messages represent the most significant category of direct evidence of inter-competitor coordination involving TMC personnel. They constitute direct, documentary proof of agreements to fix prices, allocate customers, and rig bids — all of which are per se violations of Section 1 of the Sherman Antitrust Act. The messages are contemporaneous, substantive, and specific in their content, and they directly implicate Gavin Holt as a knowing and active participant in the alleged conspiracy.
The significance of this evidence cannot be overstated. In our assessment, the VaultChat messages, standing alone, would be sufficient to support a criminal prosecution of TMC for the antitrust violations at issue. They will be a central focus of both the Board presentation on January 20, 2023, and the cooperation proffer to be submitted to the DOJ in mid-February 2023.
C. Pricing Data Analysis
The pricing data analysis provides important corroborative evidence of the alleged coordination, supplementing the direct evidence found in the VaultChat messages.
The analysis is documented in the Pricing Data Analysis Memorandum dated November 1, 2022, prepared jointly by Calderwood & Harkness and Hargrove Forensic Advisory LLC, with Dr. Vanessa Tremblay serving as the lead forensic economist.
1. Methodology. The analysis examined TMC's pricing data for the three product categories at issue — high-purity feldspar, industrial talc, and rare-earth concentrates — over an eight-year period from 2015 through 2022. TMC's price movements were compared against publicly available and subpoenaed pricing data for Ridgecrest and Pinnacle over the same period. The analysis employed econometric methods to identify patterns of price correlation and to test whether pricing behavior during the alleged conspiracy period (January 2017 through August 2021) differed in a statistically significant manner from pricing behavior during the pre-conspiracy period (2015–2016) and the post-conspiracy period (September 2021 through 2022).
2. Key Findings
The analysis identified statistically significant price correlations during the alleged conspiracy period that are materially different from the correlations observed during the pre-conspiracy and post-conspiracy periods. Specifically:
• During the conspiracy period, TMC's price movements for high-purity feldspar and industrial talc exhibited a degree of correlation with Ridgecrest's and Pinnacle's price movements that exceeded what would be expected under competitive conditions, controlling for common cost inputs and market-wide demand factors.
• The degree of price correlation decreased significantly following the termination of the alleged conspiracy in August 2021, reverting to levels more consistent with the pre-conspiracy period.
• Rare-earth concentrates exhibited less pronounced pricing anomalies, consistent with the VaultChat message analysis, which reflects relatively fewer documented exchanges regarding rare-earth pricing.
3. Limitations and Alternative Explanations
Dr. Tremblay's economic analysis indicates that the pricing patterns during the conspiracy period are consistent with coordinated behavior. However, as with any econometric analysis, the results do not by themselves establish causation, and certain independent explanations for the observed pricing patterns — including common cost inputs (e.g., energy prices, transportation costs), oligopolistic market structure, and demand-side factors — cannot be entirely excluded. These limitations are appropriately acknowledged in the memorandum and will be addressed in the Board presentation.
4. Significance for Affected-Commerce Analysis
The pricing data analysis will form the foundation for the affected-commerce volume assessment and penalty analysis that will be required in connection with any future NPA negotiations with the DOJ. The affected-commerce calculation — the total volume of commerce affected by the alleged conspiracy — is a critical input into the DOJ's penalty guidelines and will be a central topic in the resolution negotiations anticipated for 2023 and 2024. Dr. Tremblay's team is continuing its work on this analysis.
D. Trade Association Meeting Analysis
The Trade Association Meeting Analysis dated October 10, 2022, prepared by Monica Reyes, provides a detailed examination of the NASMC quarterly conferences attended by TMC personnel during the alleged conspiracy period.
1. Attendance Records
The analysis identified the NASMC quarterly conferences attended by TMC personnel, specifically Gavin Holt and Thomas Eriksen (Regional Sales Manager, Western Region), during the 2017–2021 period. Attendance records were obtained from TMC's travel and expense records, NASMC's membership and registration databases, and third-party sources.
2. Correlation with Alleged Coordination Events
The attendance records were correlated with the alleged coordination events — i.e., the side meetings between Holt, Edgerton, and Tsang that are reflected in the VaultChat messages and other evidence. The conferences identified as venues for alleged coordination include events held in Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida.
Holt's attendance at NASMC conferences overlaps significantly with the attendance of Edgerton (Ridgecrest) and Tsang (Pinnacle). In several instances, VaultChat messages reference upcoming NASMC conferences and contain discussions of topics to be addressed during in-person meetings at those events.
3. Thomas Eriksen's Attendance
Thomas Eriksen attended four NASMC conferences during the conspiracy period at which side meetings between Holt, Edgerton, and Tsang allegedly occurred. This overlap raises the question of Eriksen's potential involvement in or knowledge of the alleged coordination.
However, the evidence of Eriksen's direct participation in the coordination remains ambiguous. Eriksen is not a party to any of the recovered VaultChat messages. In his interview on July 22, 2022, Eriksen denied any knowledge of pricing agreements or coordination with competitors. While Eriksen acknowledged attending social events at NASMC conferences with Holt and, on occasion, with Edgerton and Tsang, he maintained that these interactions were limited to general industry discussion and did not involve the exchange of competitively sensitive information. A detailed assessment of Eriksen's credibility and the implications of his potential involvement is provided in the Witness Interview Memorandum — Thomas Eriksen, dated July 22, 2022.
E. Key Witness Interview Updates
All 23 witness interviews in the internal investigation have now been completed. The final round of interviews, conducted during Q4 2022, focused on mid-level personnel in the U.S. Specialty Minerals Division. No interviewee in the Q4 2022 round provided evidence of C-suite or Board awareness of the alleged conduct.
For reference, the key interviews previously reported in the Q2 2022 quarterly report are summarized below:
1. Sandra Chu — Director, Pricing Analytics
Sandra Chu was interviewed on July 18, 2022. Chu stated that she received pricing-adjustment instructions from Gavin Holt on at least 12 occasions that, when cross-referenced with the VaultChat messages and competitor pricing data, correlate temporally with competitor price movements. Specifically, Holt would direct Chu to adjust published price lists for high-purity feldspar and industrial talc to specified levels, often within days of similar adjustments by Ridgecrest or Pinnacle.
Critically, there is no direct evidence that Chu knew of the inter-competitor communications that preceded these pricing instructions. Chu's role was to implement pricing decisions made at the divisional VP level, and she did not have visibility into Holt's external communications. Chu's potential exposure as a witness (rather than a subject) in any DOJ proceedings is discussed further in connection with the anticipated voluntary proffer sessions in Section VII below.
2. Thomas Eriksen — Regional Sales Manager, Western Region
Thomas Eriksen was interviewed on July 22, 2022. Eriksen attended four NASMC conferences during the conspiracy period where side meetings allegedly occurred. Eriksen denied knowledge of any pricing agreements or coordination with competitors. As noted in Section IV.D above, the evidence of Eriksen's direct participation is ambiguous. Eriksen's credibility as a witness and his potential exposure are subjects of ongoing assessment.
3. Gavin Holt — Former VP, U.S. Specialty Minerals Sales (Attempted)
Gavin Holt, who is separately represented by Patrick Dunleavy of Briarcliff Law Group PLLC (San Francisco), declined to participate in TMC's internal investigation. Calderwood & Harkness made a formal request for Holt's cooperation on August 1, 2022, and Holt, through Mr. Dunleavy, declined on August 5, 2022. This declination was not unexpected. Holt asserted his Fifth Amendment privilege against self-incrimination before the grand jury on June 14, 2022, and his refusal to cooperate with TMC's internal investigation is consistent with his posture before the grand jury.
4. Priya Anand — General Counsel
Priya Anand was interviewed on August 12, 2022. Priya confirmed that she had no prior knowledge of the alleged conduct and was not aware of any inter-competitor communications involving TMC personnel until the investigation became known in early 2022. Priya oversaw the initial document-preservation efforts following receipt of the grand jury subpoena and provided historical context regarding TMC's antitrust compliance program, which was adopted in approximately 2014. Significantly, Priya confirmed that no annual antitrust training had been conducted since 2018, a fact that is central to the compliance-program assessment discussed in Section IX below.
5. Richard Fong — Chief Financial Officer
Richard Fong was interviewed on August 19, 2022. Fong stated that he had no knowledge of the alleged conduct and reported no financial irregularities or anomalies that would suggest awareness of pricing coordination at the corporate level. Fong confirmed that pricing authority for the U.S. Specialty Minerals Division was delegated to the divisional Vice President level — i.e., to Gavin Holt — without routine CFO or C-suite review of individual pricing decisions.
6. Q4 2022 Final Round Interviews
The final round of interviews conducted during Q4 2022 covered mid-level personnel in the U.S. Specialty Minerals Division, including sales representatives, account managers, and logistics personnel. These interviews were designed to determine whether the alleged coordination was known to or visible to personnel below the VP level. No interviewee in this round provided evidence of C-suite or Board awareness of the alleged conduct, and no interviewee provided evidence of direct knowledge of inter-competitor communications beyond what had already been identified through the Holt-centric analysis.
F. Emerging Conclusions (Preliminary, Pending Board Presentation)
Based on the totality of the evidence developed through the internal investigation to date, the following preliminary conclusions have emerged. These conclusions will be presented to the TMC Board of Directors on January 20, 2023, and will form the basis for the cooperation proffer to be submitted to the DOJ in mid-February 2023:
1. Gavin Holt engaged in pricing communications with competitors — specifically Carl Edgerton of Ridgecrest and Kevin Tsang of Pinnacle — on at least 37 documented occasions between March 2017 and July 2021. These communications encompassed price-fixing, customer allocation, and bid-rigging, and they constitute direct evidence of per se violations of Section 1 of the Sherman Act.
2. Sandra Chu received instructions from Holt to adjust published price lists on at least 12 occasions that correlate temporally with competitor price movements. However, Chu lacks direct knowledge of the inter-competitor communications that preceded these instructions, and there is no evidence that Chu was aware of or participated in any anticompetitive agreement.
3. Thomas Eriksen's direct participation in the alleged coordination is ambiguous. While Eriksen attended NASMC conferences at which side meetings allegedly occurred, there is no direct documentary evidence of his participation in anticompetitive discussions, and Eriksen has denied knowledge of any agreements.
4. There is no evidence that CEO Søren Dalmqvist, General Counsel Priya Anand, Board Chair Margaret Caldwell, or any other C-suite or Board member had knowledge of or authorized the alleged conduct. The coordination appears to have been confined to the divisional VP level and below.
5. TMC's existing antitrust compliance program, adopted in approximately 2014, was inadequate in several material respects: no annual antitrust training had been conducted since 2018; there was no monitoring of trade-association interactions or NASMC conference activities; there was no audit or logging protocol for competitor contacts; and there was no dedicated compliance officer for antitrust matters.
These conclusions are preliminary and subject to revision based on any additional evidence that may emerge. However, they reflect our best assessment of the evidentiary record as of December 31, 2022, and we do not anticipate material changes to these conclusions absent the discovery of previously unknown evidence.
V. Audit Committee Briefing — October 18, 2022
On October 18, 2022, Calderwood & Harkness provided a comprehensive briefing to the TMC Audit Committee, which is chaired by Janet Moreau-Shaw. The briefing was conducted by the undersigned and was attended by all members of the Audit Committee. The topics covered during the briefing included the following:
• Investigation Status: An overview of the DOJ investigation, including the status of grand jury proceedings and the prosecution team's posture.
• Document Production Progress: A summary of the rolling productions completed through mid-October 2022 and the anticipated completion timeline for the first subpoena response.
• Internal Investigation Update: A summary of the key findings of the internal investigation, including the VaultChat message analysis and the pricing data analysis, consistent with the findings described in Section IV above.
• Financial-Reserve Analysis: A discussion of the adequacy of TMC's litigation reserve in light of the investigation's progress and the emerging conclusions of the internal investigation.
• D&O Insurance Coverage Status: An update on the status of TMC's directors' and officers' insurance coverage and the reservation-of-rights dispute with Northland Mutual Insurance Co.
A. Litigation Reserve
Following discussion with the Audit Committee, the Committee confirmed the existing USD 30 million litigation reserve — which was established in March 2022 and disclosed in TMC's FY 2021 annual report filed on March 28, 2022 — as adequate for the time being. The Committee acknowledged the uncertainty inherent in the reserve estimate at this stage of the investigation and expressed its understanding that the reserve may need to be increased as the case evolves, particularly as cooperation and NPA negotiations progress and as the affected-commerce volume assessment is refined.
The reserve analysis was informed by the Litigation Reserve Analysis Memorandum dated October 15, 2022, which was prepared by the undersigned and delivered to Janet Moreau-Shaw in advance of the Audit Committee meeting. The memorandum analyzed the appropriate reserve amount under ASC 450 (for U.S. GAAP reporting purposes) and IAS 37 (for IFRS reporting purposes, given TMC's dual reporting obligations as a Canadian issuer listed on both the TSX and the NYSE).
Calderwood & Harkness has coordinated with Calvert & Associates LLP, TMC's independent auditor (engagement partner Daniel Moreau), regarding the adequacy of the reserve for purposes of TMC's financial reporting. Calvert has been apprised of the investigation's status and the basis for the reserve amount, and no concerns have been raised by Calvert regarding the reserve's adequacy as of the date of this report.
B. D&O Insurance Coverage
TMC tendered notice of the investigation to Northland Mutual Insurance Co. on March 4, 2022 under D&O Policy No. NMI-DO-2021-5547, which provides a USD 50 million aggregate limit with a USD 2.5 million retention. Northland acknowledged coverage for defense costs incurred by individual directors and officers of TMC in connection with the investigation. However, Northland issued a reservation of rights letter regarding entity coverage and the applicability of the policy's regulatory/criminal exclusion clause.
Calderwood & Harkness responded to Northland's reservation of rights on April 28, 2022, contesting the applicability of the regulatory/criminal exclusion on the grounds that (a) the exclusion, by its terms, applies only to fines and penalties imposed following a final adjudication, not to defense costs incurred during an investigation; and (b) the entity coverage afforded by the policy is not subject to the exclusion in the circumstances presented.
TMC's excess-layer carriers — Greystone Specialty Insurance Ltd. and Sentinel Re Ltd. — were also notified of the investigation on March 8, 2022. To date, neither excess-layer carrier has issued a reservation of rights or otherwise responded substantively to the notice.
During Q4 2022, there were no further communications from Northland regarding the reservation of rights. We will continue to monitor this matter and will pursue resolution of the coverage dispute with Northland as appropriate.
VI. Grand Jury Proceedings and DOJ Activity
A. Grand Jury Status
The grand jury empaneled in the Northern District of California, San Francisco Division (GJ-22-0194), remains active as of the date of this report. The grand jury has been investigating the alleged conspiracy since its empanelment in February 2022, and it continues to receive evidence and hear witness testimony.
No new subpoenas were issued to TMC during Q4 2022. However, as discussed in Section III.D above, we anticipate the possibility that a supplemental or second subpoena may be forthcoming in 2023 as the DOJ continues to develop its case. Calderwood & Harkness maintains regular contact with the prosecution team and will promptly advise TMC of any new subpoena or other process.
There is no indication from the DOJ of imminent indictment proceedings against TMC. The DOJ's receptivity to TMC's cooperation posture, as discussed in Section VII below, suggests that the prosecution team is willing to explore a negotiated resolution prior to seeking any indictment. However, it must be emphasized that this assessment could change, and the DOJ retains the discretion to seek an indictment at any time.
B. Gavin Holt — Individual Status
Gavin Holt continues to be separately represented by Patrick Dunleavy of Briarcliff Law Group PLLC (San Francisco). Holt's interests are adverse to TMC's interests in significant respects, and there is no joint representation or joint defense arrangement between Calderwood & Harkness and Briarcliff Law Group.
As previously reported, Holt asserted his Fifth Amendment privilege against self-incrimination before the grand jury on June 14, 2022. There were no further grand jury appearances by Holt during Q4 2022. Holt declined to participate in TMC's internal investigation on August 5, 2022, through his counsel Mr. Dunleavy.
Holt's individual exposure remains a significant factor in the broader case. Given the direct evidence of Holt's participation in the alleged conspiracy — most notably the 37 documented VaultChat exchanges — Holt faces substantial personal criminal liability for violations of Section 1 of the Sherman Act. Any future NPA between TMC and the DOJ is expected to include a carve-out expressly reserving the DOJ's right to pursue individual criminal charges against Holt. TMC's cooperation with the DOJ, including the anticipated voluntary proffer sessions for Chu and Eriksen, may further develop the evidentiary record against Holt individually.
C. Co-Subject/Co-Target Activity
Calderwood & Harkness has monitored publicly available information regarding the co-subjects and co-targets during Q4 2022. The current status of each is summarized below:
Ridgecrest Minerals Inc.: Ridgecrest is represented by Davenport, Kline & Archer LLP ("DKA"), with partner Helen Marchetti serving as lead counsel. Ridgecrest received a target letter from the DOJ on or about January 12, 2022. There have been no public updates on Ridgecrest's posture during Q4 2022, and Calderwood & Harkness has had no communications with DKA during the quarter. This is consistent with our recommendation, set forth in the memorandum dated July 15, 2022, against entering into joint defense agreements or engaging in substantive communications with counsel for co-subjects or co-targets.
Pinnacle Earth Resources Ltd.: Pinnacle is represented by Ashford Whitmore LLP, with partner George Nakamura serving as lead counsel. There have been no public updates regarding Pinnacle's status in the investigation during Q4 2022, and Calderwood & Harkness has had no communications with Ashford Whitmore.
Cascade Chemical Supply Co.: Cascade, the cooperating witness in the investigation, is represented by Whitfield, Strauss & Tully LLP, with partner Rebecca Ostrander serving as lead counsel. Cascade's cooperation agreement with the DOJ (entered on or about September 15, 2021) remains in effect. Cascade's documents and testimony provided to the DOJ triggered the broader investigation that led to the grand jury proceedings against TMC, Ridgecrest, and Pinnacle.
D. Joint Defense Agreement Status
Calderwood & Harkness's recommendation against entering into joint defense agreements ("JDAs") with counsel for Ridgecrest or Pinnacle, as set forth in our memorandum dated July 15, 2022, remains in effect. No JDAs have been entered during Q4 2022 or at any time during the pendency of this matter.
The rationale for this recommendation is twofold. First, TMC's cooperation posture — which involves active engagement with the DOJ and the anticipated submission of a cooperation proffer — is fundamentally inconsistent with participation in a JDA that would create obligations of information-sharing with entities that may not be cooperating or that may be pursuing divergent strategies. Second, the distinct evidentiary profiles of each company's conduct — including the nature and extent of each company's personnel's involvement and the strength of the evidence against each entity — create significant potential for conflicts of interest that would undermine the utility of any joint defense arrangement.
VII. Cooperation Strategy and Upcoming Proffer
TMC's cooperation strategy remains the central pillar of our approach to this matter. TMC communicated its willingness to cooperate with the DOJ via a formal letter dated June 8, 2022, and has since demonstrated that commitment through the extensive document production (approximately 487,000 documents) and the ongoing internal investigation.
The DOJ has been receptive to TMC's cooperation posture. Through ongoing dialogue with Trial Attorney Kowalski and Senior Trial Attorney Reeves, Calderwood & Harkness has maintained a constructive working relationship with the prosecution team. The DOJ has acknowledged TMC's responsiveness in the document-production process and has expressed interest in receiving a formal cooperation proffer setting forth TMC's internal investigation findings, remediation efforts, and the mitigating factors supporting resolution short of prosecution.
In light of these developments, Calderwood & Harkness is preparing a written cooperation proffer to be submitted to the DOJ in Q1 2023. The targeted submission date is mid-February 2023 (approximately February 15, 2023). The proffer will outline the following:
1. TMC's cooperation to date, including the completion of the document production (approximately 487,000 documents, 3.2 million pages) and the conduct of the internal investigation;
2. Internal investigation findings, including the VaultChat message analysis, the pricing data analysis, and the assessment of individual roles (Holt, Chu, Eriksen);
3. Remediation efforts undertaken and planned, including the planned redesign of TMC's antitrust compliance program to address the deficiencies identified in the internal investigation;
4. Mitigating factors supporting resolution short of prosecution, including the absence of C-suite or Board involvement, TMC's prompt engagement of outside counsel and initiation of the internal investigation, the voluntary and comprehensive nature of TMC's cooperation, and TMC's commitment to implementing robust compliance enhancements; and
5. A proposed resolution framework, including TMC's request that the DOJ enter into a non-prosecution agreement with TMC in recognition of its cooperation and remediation.
In addition to the written proffer, Calderwood & Harkness is preparing for voluntary proffer sessions for Sandra Chu and Thomas Eriksen, which are anticipated to take place in Q1 or Q2 2023. These sessions will be conducted subject to negotiated proffer terms, including standard "queen-for-a-day" protections ensuring that statements made during the proffer sessions cannot be used directly against the witnesses in any subsequent prosecution. Calderwood & Harkness will negotiate the specific terms of these proffer agreements with the DOJ in the coming weeks.
The voluntary proffer sessions serve dual strategic purposes: they demonstrate TMC's commitment to cooperation by making witnesses available to the prosecution team, and they provide an opportunity to present Chu's and Eriksen's accounts in a controlled setting that protects their interests while advancing TMC's cooperation narrative.
VIII. Upcoming Board Presentation — January 20, 2023
Calderwood & Harkness is preparing a comprehensive presentation of the internal investigation findings for the TMC Board of Directors, scheduled for January 20, 2023. This presentation will be a critical milestone in the matter, as it will provide the Board with the information necessary to make informed decisions regarding TMC's cooperation strategy and compliance remediation.
A. Deliverables in Preparation
The following deliverables are being prepared for the Board presentation:
1. Internal Investigation — Final Findings Memorandum: A privileged memorandum from Elaine Forsythe to the TMC Board of Directors setting forth the complete findings of the internal investigation, including the VaultChat message analysis, the pricing data analysis, the trade-association meeting analysis, and the witness interview summaries. This memorandum will be the definitive record of the internal investigation's findings and conclusions.
2. Internal Investigation — Board Presentation Slides: A presentation deck summarizing the key findings and recommendations in a format suitable for Board discussion. The slides will cover the same substantive topics as the memorandum but in a more accessible format designed to facilitate Board deliberation and decision-making.
B. Key Topics
The Board presentation will cover the following key topics:
• Scope and Methodology of the Internal Investigation: A description of the scope of the investigation, the data sources reviewed, the interview program, and the economic analysis conducted by Hargrove Forensic Advisory.
• Key Findings Regarding Gavin Holt's Conduct: A detailed presentation of the 37+ documented competitor communications, including the substance of the VaultChat messages and their implications for TMC's legal exposure.
• Assessment of Sandra Chu's and Thomas Eriksen's Roles: An analysis of the evidence regarding Chu's implementation of Holt's pricing instructions and Eriksen's attendance at NASMC conferences, including an assessment of each individual's potential exposure.
• Absence of C-Suite/Board Involvement: A summary of the evidence — or, more precisely, the absence of evidence — regarding the knowledge or involvement of TMC's senior executives and Board members.
• Assessment of TMC's Legal Exposure: An analysis of TMC's potential corporate criminal liability, including the legal framework for corporate liability under the Sherman Act and the DOJ's Antitrust Division policies regarding corporate prosecution.
• Recommended Cooperation Strategy and Pursuit of Non-Prosecution Agreement: A presentation of the recommended cooperation strategy, including the submission of the cooperation proffer to the DOJ and the anticipated voluntary proffer sessions for Chu and Eriksen.
• Compliance Remediation Recommendations: A discussion of the deficiencies in TMC's existing antitrust compliance program and recommendations for the design of an enhanced program, as discussed in Section IX below.
C. Board Authorization