[Federal Register Volume 60, Number 9 (Friday, January 13, 1995)]
[Notices]
[Pages 3258-3270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-781]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Steinhardt Management Company, Inc.; and Caxton
Corporation; Proposed Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 6 (b) through (h), that a proposed Final
Judgment, Stipulation, and Competitive Impact Statement have
[[Page 3259]] been filed with the United States District Court for the
Southern District of New York in United States v. Steinhardt Management
Company, Inc.; and Caxton Corporation, Civil Action No. 94-9044 (RPP).
The Complaint in this case alleges that the defendants conspired to
restrain competition in markets for specified United States Treasury
securities by agreeing to coordinate their actions in trading the
specified Treasury securities, in violation of Section 1 of the Sherman
Act, 15 U.S.C. 1.
The proposed Final Judgment enjoins the defendants from agreeing
with each other or with any other person (A) to restrain trade in the
cash and/or financing markets for Treasury securities in violation of
the antitrust laws of the United States; (B) to purchase, sell, or
refrain from purchasing or selling any Treasury security issue to or
through a particular person; or (C) to withhold all or part of a
defendant's or another person's position in a Treasury security issue
from the cash or financing markets. Certain of these prohibitions are
subject to limitations or exceptions which are discussed more fully in
the accompanying Competitive Impact Statement. Each defendant is also
required to appoint an antitrust compliance officer and establish an
antitrust compliance program with specified requirements.
Public comment is invited within the statutory 60-day comment
period. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Comments should be directed
to John F. Greaney, Chief, Computers & Finance Section, Antitrust
Division, Department of Justice, Suite 9901, 555 4th Street NW.,
Washington, D.C. 2001, (telephone: 202/307-6200).
Constance K. Robinson,
Director of Operations Antitrust Division.
United States District Court Southern District of New York,
United States of America, Plaintiff, v Steinhardt Management
Company, Inc.; and Caxton Corporation, Defendants, and $12,500,000
that is the Property of Steinhardt Management Company, Inc.;
Steinhardt Management, Company, Inc., Real Party in Interest and
$12,500,000 that is the property of Caxton Corporation, Caxton
Corporation, Real Party in Interest.
Complaint
The United States of America, plaintiff, by its attorneys, acting
under the direction of the Attorney General of the United States,
brings this civil action to obtain equitable and other relief against
the defendant entities and to obtain forfeiture of the defendant
property and complains and alleges:
I. Jurisdiction and Venue
1. This action is brought under Sections 4 and 6 of the Sherman
Act, 15 U.S.C. Secs. 4, 6, as amended, to restrain violation of Section
1 of the Sherman Act, 15 U.S.C. Sec. 1, as amended, and to obtain
forfeiture of property owned pursuant to a contract, combination or
conspiracy in violation of Section 1 of the Sherman Act. The Court has
jurisdiction over this matter pursuant to Section 4 of the Sherman Act
and 28 U.S.C. Secs. 1345, 1355.
2. Venue is proper in this district under Section 12 of the Clayton
Act, 15 U.S.C. Sec. 22, as amended, and under 28 U.S.C. Sec. 1391(c)
because the defendant entities transact business and are found in the
Southern District of New York.
3. This is an in rem proceeding against the defendant property.
That property is in the defendant entities' bank accounts in the
Southern District of New York.
II. Description of the Conspiracy
4. This action arises from an unlawful combination and conspiracy
among the defendant entities, Steinhardt Management Company (``SMC'')
and Caxton Corporation (``Caxton''), and other persons, to restrain
interstate trade and foreign commerce in the 7.00% United States
Treasury notes auctioned on April 24, 1991 (``April notes'') by
withholding the notes from the markets for such securities in order to
profit from the artificial shortage, or ``squeeze,'' resulting from the
withholding of supply.
5. Beginning in mid-April 1991, Caxton and SMC each bought large,
leveraged long positions in the April notes. As of mid-May 1991, their
combined position in the issue was almost $20 billion. This combined
position represented about 160% of the approximately $12 billion of
April notes issued by the United States Treasury. Between early May
1991 and mid-September 1991, SMC and Caxton, in combination, owned
(``held'') from $12 billion to $19 billion April notes.
6. The purchases of April notes by Caxton and SMC had the effect of
concentrating ownershp of the issue and, simultaneously, creating a
substantial ``short'' position on it. Once created, this short position
could be utilized only if the defendant entities reduced the size of
their positions in the April notes.
7. Caxton and SMC effectively controlled the supply of April notes
available to both the ``cash market'' (where purchases and sales occur)
and the ``financing market'' (where persons with leveraged long
positions, such as the defendant entities, borrow money in order to buy
or to continue to hold an issue. Short sellers in both markets were
required, in effect, to buy or borrow April notes from Caxton or SMC.
8. After accumulating their position in the April notes, the
defendant entities and their coconspirators acted to restrict the
supply of April notes to short sellers. The consequences of this action
was to cause short sellers to bid up prices for April notes in the cash
and financing markets. From the latter part of May 1991 through mid-
September 1991, Caxton and SMC and their coconspirators withheld
significant quantities of April notes from the cash and financing
markets. Due to this constriction in supply, the price of April notes
in the cash market was increased; likewise, interest rates charged to
finance a position in the April notes were depressed.
9. As a result of the actions taken by the defendant entities and
their coconspirators, they and their coconspirators earned substantial
profits from the low financing rates and high cash prices of the April
notes caused by their actions.
III. Defendants
10. SMC is a New York corporation with its principal place of
business in New York, New York. SMC manages several investment funds.
As manager of those funds, SMC purchased and financed April notes. SMC
is the real party in interest related to the $12,500,000.00 of
defendant property it owns and controls.
11. Caxton is a Delaware corporation, with its principal place of
business in New York, New York. Caxton manages several investment
funds. As manager of those funds, Caxton purchased and financed April
notes. Caxton is the real party in interest related to the
$12,500,000.00 of defendant property it owns and controls.
12. The investment funds SMC and Caxton manage compete with
numerous investors and traders in the sale, purchase, financing, and
lending of specific issues of United States Treasury securities.
13. Various persons not made defendants in this action have
participated as co-conspirators in the violations alleged in this
Complaint and have performed acts and made statements in furtherance of
the conspiracy.
IV. The Markets for April Notes
14. When the owner of a specific Treasury security holds a position
in [[Page 3260]] that issue that exceeds the amount of the issue
available for purchase by short sellers in the cash or financing
markets, a ``squeeze'' can occur. A squeeze is especially likely to
succeed if the size of the position held by the single owner, or the
combined position of the coordinating holders, exceeds the amount of
the issue available to cover short positions through repurchase or
``repo'' agreements in the financing market. When a squeeze occurs,
short sellers are required to pay abnormally high prices or to incur
abnormally high financing costs to buy or borrow the specific security
they are short.
15. Purchasers of Treasury securities that wish to leverage their
investments, such as the defendant entities, usually finance their
positions in the financing market. In a financing market transaction,
the owner of a security sells the issue and simultaneously agrees to
repurchase it on a specified date for a specified price. The repurchase
price is higher than the sale price, the difference between the two
prices representing an interest rate, called the ``repo rate''. A
financing market transaction is the functional equivalent of a loan in
which Treasury securities are used as collateral.
16. Short sellers (traders who sell securities they do not own in
the expectation that the price will fall) must purchase or borrow the
specific security that they are obligated to deliver in order to
fulfill their obligations. An investor who needs to borrow a specific
Treasury security issue can do so in the financing market, through
``special'' repo transactions in which the investor (short seller), in
effect, lends cash in exchange for collateral of a specific issue.
17. There are separate product markets within the meaning of the
antitrust laws for specific Treasury issues within both the cash and
financing markets. Some traders speculate in the financing market for
specific issues, lending cash and accepting securities as collateral,
in the hope that they can re-lend the collateral to someone else at a
profit. Interest rates for special repo transactions in the financing
markets fluctuate widely because they reflect supply and demand for a
particular security. If a security is in short supply, the repo rate
for that issue will generally be low because owners will be able to
negotiate lower repo rates from short sellers competing to borrow the
scarce security.
18. Prices in the cash and financing markets are related. When it
is costly to borrow a specific security, demand for it in the cash
market will increase if some traders buy, rather than borrow, it. As a
result, the issue may cost more than other securities of comparable
maturity. Similarly, a high price in the cash market (compared to
securities of like maturity) may cause short sellers to borrow a
security through repurchase agreements rather than buy it. That
increased demand may depress repo rates. The holder of a specific issue
can earn a premium when lending or selling that security when demand
for it is great in either the cash or financing market.
19. The owner of a large position in a specific issue, or two or
more holders acting together, can limit the supply of that issue
available to the specials market by financing all or part of their
positions ``off the street,'' that is, with parties who will not re-
lend the securities. Such a restriction of supply can precipitate a
squeeze when demand for the issue exceeds the supply made available. In
that situation, investors who must borrow the issue must accept very
low interest rates in the repo market (on the cash they lend to obtain
the issue), enabling the owner or owners of the issue to earn a premium
for making the security available.
20. Sellers of Treasury securities transmit securities to buyers in
interstate commerce through the Federal Reserve System. The business
activities of the defendant entities and co-conspirators that are the
subject of this complaint were within the flow of, and substantially
affected, interstate trade and commerce.
V. The Conspiracy
21. Beginning in or about April 1991, Caxton and SMC agreed to
acquire control of the supply of April notes and to limit the supply of
April notes to the cash and financing markets in order to cause a
squeeze and to profit thereby. To achieve the objectives of the
conspiracy, the defendant entities did the things they agreed to do,
including:
a. purchasing and holding extremely large long positions in the
April notes;
b. exchanging information about their positions in the April notes;
c. discussing ways to finance their positions in the April notes in
a manner that would restrict the supply of the notes available to the
cash and financing markets;
d. restricting the supply of April notes available for specials
transactions, beginning on May 23, 1991;
e. instructing a primary dealer at which SMC concentrated the
financing of its April note position to make the notes available for
specials transactions only if the repo rate was below a specified level
(and giving other directions to constrict supply availability);
f. placing a part of Caxton's position in the April notes with a
primary dealer that Caxton understood would place the notes with
investors who were not likely to lend them;
g. concentrating the financing of their positions with a single
dealer; and
h. continuing to hold their positions in the April notes at times
when they could have sold some or all of these positions at a
substantial premium.
22. As a result of the conspiracy, repo rates for the April notes
in the financing market declined and cash market prices for the notes
increased. Repo rates for April notes generally remained low and cash
market prices high until September 1991, when the joint position of SMC
and Caxton fell below the amount necessary to continue the squeeze.
VI. Anticompetitive Effects of the Conspiracy
23. The combination and conspiracy to restrain interstate trade and
commerce in April notes had, among other things, the following effects:
a. SCM and Canton obtained market power over the April notes;
b. Persons who sold April notes short were denied the benefits of
free and open competition in the cash and financing markets for April
notes, resulting in higher costs to finance and purchase April notes;
c. Price competition for April notes was unreasonably restrained;
d. Liquidity in the markets for April notes was reduced; and
e. The Treasury was denied the benefits of a free and competitive
secondary market for April notes.
24. The combination and conspiracy affected a substantial amount of
interstate commerce and is likely to recur unless it is enjoined by
this Court.
VII. Prayer for Relief
Wherefore, plaintiff prays for relief as follows:
1. That the Court adjudge and decree that SCM and Canton have
combined and conspired in unreasonable restraint of interstate trade
and commerce in April notes, in violation of Section 1 of the Sherman
Act, 15 U.S.C. Sec. 1.
2. That SCM and Canton and all persons acting on behalf of either
of them or under their direction or control be permanently enjoined
from engaging in, carrying out, renewing, or attempting to engage in,
carry out, or renew, any contracts, agreements, practices, or
understandings in violation of the Sherman Act.
3. That the defendant property be forfeited to the United States.
4. That plaintiff have such other relief as the Court may consider
necessary or appropriate. [[Page 3261]]
5. That plaintiff recover the costs of this action.
Dated:
Anne K. Bingaman,
Assistant Attorney General.
Robert Titan,
Assistant Attorney General.
Mark C. Schechter,
Deputy Director of Operations.
John F. Greaney,
Chief, Computers and Finance Section.
Jonathan M. Rich,
Assistant Chief, Computers and Finance Section.
Hays Corey, Jr.,
HG1946.
Kenneth W. Gaul,
Attorneys, Antitrust Division, United States Department of Justice, 555
4th St., N.W., Washington, DC 20001.
United States District Court Southern District of New York,
United States of America, Plaintiff, v. Steinhardt Management
Company, Inc.; and Caxton Corporation, Defendants, and $12,500,000
That is the Property of Steinhardt Management Company, Inc.;
Steinhardt Management, Company, Inc., Real Party in Interest and
$12,500,000 That is the Property of Caxton Corporation, Caxton
Corporation, Real Party in Interest. 94 Civ. 9044.
Stipulation
It is hereby stipulated and agreed, by and between the undersigned
parties, by their respective attorneys, that:
1. The parties consent that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon the motion of any
party or upon the Court's own motion, at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act (15
U.S.C. Sec. 16), and without further notice to any party or other
proceedings, provided that plaintiff has not withdrawn its consent,
which it may do at any time before the entry of the proposed Final
Judgment by serving notice thereof on defendants and by filing that
notice with the Court.
2. The parties shall abide by and comply with the provisions of the
Final Judgment pending entry of the Final Judgment.
3. In the event plaintiff withdraws its consent or if the proposed
Final Judgment is not entered pursuant to this Stipulation, this
Stipulation will be of no effect whatever, and the making of this
Stipulation shall be without prejudice to any party in this or any
other proceeding.
December 14, 1994.
For Plaintiff United States of America.
John F. Greaney,
Chief, Computers and Finance Section, Antitrust Division, Department of
Justice.
December 15, 1994.
For Defendant Steinhardt Management Company, Inc..
Frederick P. Schaffer,
December 15, 1994.
For Defendant Caxton Corporation.
Richard J. Wiener.
United States District Court Southern District of New York,
United States of America, Plaintiff, v. Steinhardt Management
Company, Inc.; and Caxton Corporation, Defendants, and $12,500,000
That is the Property of Steinhardt Management Company, Inc.;
Steinhardt Management, Company, Inc., Real Party in Interest and
$12,500,000 That is the Property of Caxton Corporation, Caxton
Corporation, Real Party in Interest. 94 Civ. 9044.
Final Judgment
Whereas Plaintiff, United States of America, having filed its
Complaint in this action on December 16, 1994, and plaintiff and
defendant entities, by their respective attorneys, having consented to
the entry of this Final Judgment without trial or adjudication of any
issue of fact or law; and without this Final Judgment constituting any
evidence or admission by any party with respect to an issue of fact or
law;
And Whereas defendant entities have agreed to be bound by Section
IV of this Final Judgment pending its approval by the Court;
Now Therefore, before any testimony is taken, and without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is hereby
Ordered, Adjudged and Decreed:
I
Jurisdiction
This Court has jurisdiction of the subject matter of this action
and of the person of the defendant entities and of the defendant
property by virtue of 28 U.S.C. Secs. 1345, 1355. Venue exists in this
Court pursuant to 28 U.S.C. Sec. 1395(b). The Complaint states a claim
upon which relief may be granted under Sections 1 and 6 of the Sherman
Act, 15 U.S.C. Secs. 1, 6.
II
Definitions
As used in this Final Judgment:
1. ``Agree'' means to enter into any contract, combination,
conspiracy, concert of action, or mutual understanding, formal or
informal, express or implied, with any other person.
``Any'' means one or more.
3. ``Cash market'' means the market in which Treasury securities
are bought and sold, and includes the when-issued market and the
secondary market.
4. ``CUSIP number'' means the alphanumeric description of a
Treasury security established by the American Bankers Association's
Committee on Uniform Securities Identification Procedures.
5. ``Defendant entities'' means Steinhardt Management Company, Inc.
and Caxton Corporation.
6. ``Finance'' or ``financing transaction'' means any transaction
whereby a person who has a position in an issue obtains cash or credit
from another person by using such position as collateral, including any
transaction pursuant to which possession or ownership of a position in
an issue is transferred by one party to another with a simultaneous
agreement that the second party will later return such position to the
first party, such as a repurchase agreement, a reverse repurchase
agreement, or a borrow versus pledge agreement.
7. ``Financing market'' means the market for financing positions in
Treasury securities through which an issue may be made available to
holders of short positions in that issue.
8. ``Includes'' or ``including'' means includes, but is not limited
to.
9. ``Issue'' means a particular marketable United States Treasury
security, as distinguished from all others by its CUSIP number.
10. ``Or'' means either or both, and is used as a word of inclusion
rather than exclusion.
11. ``Other person'' means a person other than: a defendant entity;
any subsidiary, officer, director, employee, agent, successor, or
assign of a defendant entity; any person who makes, or has authority to
make, trading or investment decisions on behalf of a defendant entity
in the cash or financing markets; any person in which any shareholder
in a defendant entity as of the date of entry of this Final Judgment
makes, or has authority to make, trading or investment decisions in the
cash or financing markets; any account or assets managed on a
discretionary basis by a defendant entity or, while acting in respect
to such account or assets, by a defendant entity's designee.
12. ``Person'' means any individual, partnership, firm,
corporation, association, sole proprietorship, joint venture, or other
business or legal entity, whether or not organized for profit.
13. ``Position'' means the quantity of an issue held, whether
outright or as the [[Page 3262]] consequence of any financing
transaction, except that a person shall not be deemed to have obtained
a position in an issue as the result of having engaged in a financing
transaction with a defendant entity.
14. ``Treasury auction'' means any auction of Treasury securities
conducted by or on behalf of the United States Department of the
Treasury.
15. ``Treasury security'' means any marketable United States
Treasury bill, note, or bond.
16. ``Withhold'' means to decline to sell or finance for any period
of time part or all of a position in any issue.
Use of either the singular or plural should not be deemed a
limitation and the use of the singular should be construed to include,
where applicable, the plural and vice versa.
III
Applicability
This Final Judgment shall apply to the defendant entities and each
of their subsidiaries, officers, directors, employees, agents,
successors, and assigns; to any entity for or in which any person who
is a shareholder in a defendant entity as of the date of entry of this
Final Judgment, whether directly or indirectly, conducts or directs
asset management or investment advisory activities that involve
transactions in the cash market or in the financing market (hereinafter
``related entity''); and to all persons acting in concert with any
defendant entity and having actual notice of this Final Judgment;
provided, however, that this Final Judgment shall not apply to any fund
or other entity whose assets are managed or invested in whole or in
part by a defendant entity or by a related entity.
IV
Prohibited Conduct
A. The defendant entities are enjoined and restrained from agreeing
with each other or with any other person to restrain trade in the cash
or financing markets in violation of the antitrust laws of the United
States.
B. The defendant entities are enjoined and restrained from agreeing
with each other or with any other person:
1. to purchase or refrain from purchasing any issue from a
particular person; or
2. to sell or refrain from selling any issue to or through a
particular person.
C. The defendant entities are enjoined and restrained from agreeing
with any other person:
1. to withhold, directly or indirectly, all or any part of such
other person's position from the cash market; or
2. to withhold, directly or indirectly, all or any part of such
other person's position from the financing market.
D. The defendant entities are enjoined and restrained from agreeing
with any other person:
1. to withhold, directly or indirectly, all or part of a defendant
entity's position from the cash market for the purpose of (a)
maintaining the value of such other person's position or (b) causing
the value of such other person's position to increase, for any period
of time; or
2. to withhold, directly or indirectly, all or part of a defendant
entity's position from the financing market for the purpose of (a)
maintaining the value of such other person's position or (b) causing
the value of such other person's position to increase, for any period
of time.
E. Notwithstanding any provision of Section IV.B to the contrary,
nothing in this Final Judgment shall prohibit a defendant entity:
1. from agreeing with its counterparty to enter into a transaction
to purchase or sell an issue; or
2. from agreeing with another person that such other person tender
a bid on behalf of such defendant entity at a Treasury action.
F. Notwithstanding any provision of either Section IV.B or Section
IV.C to the contrary, nothing in this Final Judgment shall prohibit any
defendant entity from agreeing with another person that such other
person not increase or decrease its position in an issue while such
other person is endeavoring to transact the purchase, sale or financing
of a position in such issue with or on behalf of a defendant entity.
V
Compliance provisions
Each defendant entity is ordered to initiate and maintain an
antitrust compliance program which shall include designating, within
thirty (30) days of the entry of this Final Judgment, an Antitrust
Compliance Officer, who shall monitor the activities of all persons
responsible for trading or financing Treasury securities on behalf of
the defendant entity and shall be responsible for establishing an
antitrust compliance program designed to provide reasonable assurance
of compliance with this Final Judgment and with the federal antitrust
laws by the defendant entity. The Antitrust Compliance Officer shall
also:
1. Distribute, within thirty (30) days from the entry of this Final
Judgment, a copy of this Final Judgment to: (a) all members of the
Board of Directors and Officers of the defendant entity; (b) all
traders or other employees of the defendant entity whose duties include
the trading or financing of Treasury securities; and (c) all agents of
the defendant entity whose responsibilities include the trading or
financing Treasury securities on behalf of such defendant entity (not
including brokers or dealers who may occasionally act as agents of a
defendant entity on a transaction-specific basis).
2. Distribute within thirty (30) days a copy of this Final Judgment
to (a) any person who becomes a member of the Board of Directors or
officers of the defendant entity and (b) to any employee of the
defendant entity who is, in the future, given any duties which include
the trading or financing of Treasury securities.
3. Brief annually those persons designated in Paragraphs 1 and 2 of
this Section on the meaning and requirements of the federal antitrust
laws and this Final Judgment and inform them that the Antitrust
Compliance Officer or a designee of the Antitrust Compliance Officer is
available to confer with them regarding compliance with such laws and
with this Final Judgment.
4. Obtain from each person designated in Paragraphs 1 and 2 of this
Section an annual written certification that he or she: (a) has read,
understands, and agrees to abide by the terms of this Final Judgment;
(b) has been advised and understands that noncompliance with this Final
Judgment may result in his or her being found in civil or criminal
contempt of court; and (c) is not aware of any violation of the federal
antitrust laws or of this Final Judgment that he or she has not
reported to the Antitrust Compliance Officer.
5. Maintain a record of persons to whom this Final Judgment has
been distributed and from whom the certification required by Paragraph
4 of this Section has been obtained.
6. Certify to the Court and to the Assistant Attorney General in
charge of the Antitrust Division, within forty-five (45) days after
entry of this Final Judgment, that the defendant entity: (a) has
designated an Antitrust Compliance Officer, specifying his or her name,
business address, and telephone number; and (b) has distributed this
Final Judgment, briefed the appropriate persons, and obtained
certifications, as required by this Section V. [[Page 3263]]
VI
Plaintiff access
A. For the purpose of determining or securing compliance with this
Final Judgment, duly authorized representatives of the plaintiff shall,
upon written request of the Assistant Attorney General in charge of the
Antitrust Division, and on reasonable notice to the relevant defendant
entity, subject to any lawful privilege, be permitted:
1. access during such defendant entity's regular office hours to
inspect and copy all records and documents in its possession or
custody, or subject to its control, relating to any matters contained
in this Final Judgment; and
2. to depose or interview such defendant entity's officers,
employees, trustees, or agents, who may have counsel present, regarding
any matters contained in this Final Judgment; such depositions or
interviews to be subject to the reasonable convenience of and without
restraint or interference from the defendant entity.
B. Upon the written request of the Assistant Attorney General in
charge of the Antitrust Division, each of the defendant entities shall
submit such written reports, under oath if requested, relating to any
of the matters contained in this Final Judgment as may be reasonably
requested.
C. No information or documents obtained by the means provided in
this Section shall be divulged by the plaintiff to any person other
than a duly authorized representative of the executive branch of the
United States, except in the course of legal proceedings to which the
United States is a party, or for the purpose of security compliance
with this Final Judgment, or as otherwise required by law.
D. If at the time information or documents are furnished by a
defendant entity to plaintiff, such defendant entity represents and
identifies in writing the material in any such information or documents
to which a claim of protection may be asserted under Rule 26(c)(7) of
the Federal Rules of Civil Procedure, and said defendant marks each
pertinent page of such materials, ``Confidential: Subject to claim of
protection under Rule 26(c)(7) of the Federal Rules of Civil
Procedure,'' then ten (10) days' notice shall be given by plaintiff to
such defendant entity prior to divulging such material in any legal
proceeding to which the defendant entity is not a party; provided,
however, that nothing herein shall apply to any use of such information
or documents in any grand jury proceeding.
VII
Further Elements of Decree
A. Jurisdiction is retained by this Court for the purpose of
enabling any of the parties to this Final Judgment to apply to this
Court at any time for further orders and directions as may be necessary
or appropriate to carry out or construe this Final Judgment, to modify
or terminate any of its provisions, to enforce compliance, and to
punish violations of its provisions.
B. This Final Judgment shall terminate ten (10) years from the date
of entry.
C. The defendant property that is the property of Steinhardt
Management Company, Inc. is hereby forfeited to the United States.
Steinhardt Management Company, Inc. shall pay $12,500,000, plus the
Additional Amount defined in the Civil Settlement Agreement between
Steinhardt Management Company, Inc. and the United States Department of
Justice dated December 16, 1994, within five (5) business days after
receipt of notice of this Final Judgment. Such amount represents that
portion of the settlement amount forfeited to the Department of Justice
pursuant to 15 U.S.C. Sec. 6, and which is payable to the Department of
Justice Asset Forfeiture Fund.
D. The defendant property that is the property of Caxton
Corporation is hereby forfeited to the United States. Caxton
Corporation shall pay $12,500,000 plus the Additional Amount defined in
the Civil Settlement Agreement between Caxton Corporation and the
United States Department of Justice dated December 16, 1994, within
five (5) business days after receipt of notice of this Final Judgment.
Such amount represents that portion of the settlement amount forfeited
to the Department of Justice pursuant to 15 U.S.C. Sec. 6, and which is
payable to the Department of Justice Asset Forfeiture Fund.
E. Entry of this Final Judgment is in the public interest.
United States District Court Southern District of New York,
United States of America, Plaintiff, v. Steinhardt Management
Company, Inc.; and Caxton Corporation, Defendants, and $12,500,000
That is the Property of Steinhardt Management Company, Inc.;
Steinhardt Management, Company, Inc., Real Party in Interest and
$12,500,000 That is the Property of Caxton Corporation, Caxton
Corporation, Real Party in Interest. 94 Civ. 9044.
Competitive Impact Statement
Pursuant to Section 2(b) of the Antitrust Procedures and Penalties
Act, 15 U.S.C. Sec. 16(b)-(h), the United States submits this
Competitive Impact Statement relating to the proposed Final Judgment
submitted for entry in this civil antitrust proceeding.
I
Nature and Purpose of the Proceeding
On December 16, the United States filed a civil antitrust complaint
alleging that Steinhardt Management Company, Inc. (``SMC''), Caxton
Corporation (``Caxton'') and others conspired to restrain competition
in markets for specified United States Treasury securities, in
violation of Section 1 of the Sherman Act, 15 U.S.C. Sec. 1. The
complaint seeks injunctive relief and forfeiture of property owned by
SMC and Caxton pursuant to the alleged conspiracy under Section 6 of
the Sherman Act, 15 U.S.C. Sec. 6.
The complaint alleges that, beginning in April 1991 and continuing
into September 1991, the defendant entities and others (collectively,
the ``conspirators'') violated Section 1 of the Sherman Act by agreeing
to coordinate their actions in trading the two-year Treasury notes
auctioned by the United States Treasury on April 24, 1991 (``April
Notes''). During that period, the conspirators coordinated trading in
the secondary markets for the April Notes, including both the cash
market (where purchases and sales occur) and the financing market
(where, in effect, persons with leveraged long positions, such as the
defendant entities, borrow money in order to buy or to continue to hold
an issue). The alleged conspiracy affected the price of the April Notes
in both the cash market and the financing market.
The United States and the defendant entities have stipulated to the
entry of a proposed Final Judgment, which will grant the relief sought
in the complaint and terminate this action.
II
Description of the Practices Involved in the Alleged Violation
A. The Treasury Securities Markets
The Treasury finances the debt of the United States by issuing
Treasury securities in the form of bonds, notes and bills. Treasury
bonds, notes and bills are sold by the Treasury through periodic
auctions conducted by the Federal Reserve System. At each such auction,
the Treasury awards securities to the bidders willing to accept the
lowest yield levels (effectively, interest rates) on their cash.
A week before an auction of a particular issue, the Treasury
announces the size of the issue to be auctioned. ``When-issued''
trading for that issue [[Page 3264]] begins immediately thereafter. In
a when-issued trade, no money changes hands; rather, sellers agree to
deliver the securities on the date the Treasury settles with successful
bidders, generally one week after the auction (``settlement''). At
settlement, the Treasury transmits the new issue to the successful
bidders in exchange for payment. On settlement day, when-issued buyers
must pay for their purchases and when-issued sellers must deliver the
securities they sold. Persons who sell short an issue in the when-
issued market must deliver that issue to the purchaser at settlement;
they cannot substitute another Treasury issue.\1\
\1\Each Treasury security of a particular issue is unique and
bears an identification number (known as a ``CUSIP number'') which
distinguishes it from all other securities. Thus, all April Notes
(all of which were issued on the same date) bore the same CUSIP
number.
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After settlement, trading to buy and sell the issue continues in
the secondary or ``cash'' market until the maturity date, when the
issue is redeemed. In every when-issued or cash market trade, a seller
who does not already own the issue is said to be ``short,'' and the
buyer ``long.'' The ``short'' seller may obtain the securities it is
required to deliver by purchasing them at the Treasury auction or in a
when-issued or cash market trade. Alternatively, the short may borrow
them in the ``financing market,'' generally through a repurchase or
``repo'' transaction, and delivering the borrowed securities to the
buyer.
Traders of Treasury securities frequently use repurchase agreements
not only to effectuate delivery when they have ``short'' positions, but
also to finance their ``long'' purchases. A repurchase transaction is
the functional equivalent of a loan using Treasury securities as
collateral, in which the owner of an issue sells it and simultaneously
agrees to repurchase it on a specified date for a specified price. The
repurchase price is somewhat higher than the sale price; the difference
between the two prices represents an interest rate, and is often called
the ``repo'' rate.
Treasury securities can be financed either through ``special'' repo
agreements, in which the collateral is a particular, identified issue,
or through ``general'' repo agreements, in which no particular issue
need be specified for delivery. When there is specific demand for an
issue because short sellers need to borrow the issue in order to
deliver it to persons who have bought it, owners can lend the issue in
a special repo-market transaction at a ``special rate.''\2\ The issue
generally is said to be ``on special'' when the interest rate that
owners (such as SMC and Caxton in the case of the April Notes) are
required to pay to borrow cast against the issue is significantly lower
than the ``general'' collateral rate.'' The general collateral rate is
an overall rate for loans collateralized by Treasury securities, and
usually fluctuates only in relation to short-term, money-market rates.
Because the demand, as reflected by price, for a particular issue is
unique in both the cash market and in the financing market (while the
issue is on special), there are separate product markets for each
Treasury security issue within the meaning of the antitrust laws.
\2\A Treasury security may trade ``on special'' in the
collateral markets for various reasons. Special rates could be the
result of ordinary market supply and demand, but could also be
induced by persons acting together to distort normal market forces.
Potentially, if the holders of an issue withhold enough of it from
the ``specials'' market, unmet demand may cause come percentage of
the issue to be financed at interest rates approaching zero.
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If the supply of an issue is artificially constricted by agreement
among the holders of the issue, both the price of the issue in the cash
market and the cost of borrowing the issue in the financing market
increase.\3\ When the cost of purchasing an issue in the cash market or
the cost of borrowing it in the financing market is significantly
different than the cost of buying or borrowing securities of comparable
maturities, a ``squeeze'' is said to occur.
\3\Due to the manner in which the financing market works, the
increased cost of borrowing the security occurs when short sellers
earn lower interest rates on money they lend to holders in order to
borrow the security overnight or for a short term. The cost of
borrowing the securities increases when short sellers--who must
borrow the security to avoid a default (failure to deliver or
``fail'') on their contractual obligations--receive say, only 4.25%
on the money they land when, if the issue were not ``on special,''
they would have been able to borrow the securities in the repo
market and earn a higher interest rate, say, 5.75%.
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B. The Conspiracy
SMC and Caxton both manage investment funds--sometimes known as
``hedge funds''--which generally make large, ``leveraged'' investments
with borrowed capital. The hedge funds managed by the defendant
entities compete with numerous other traders and investors in the when-
issued, cash and financing markets to sell purchase and finance various
Treasury security issues. Prior to their purchase of April Notes, the
defendant entities had a history of interaction. Beginning in January
1990, Caxton became co-managing general partner of two of SMC's funds,
and Caxton's chairman became the president of SMC. The formal
affiliation of Caxton and its chairman with SMC ended after one year,
but employees and agents of the defendant entities continued to
communicate regularly with each other, including during the period
encompassed by the conspiracy.
As charged in the complaint, beginning in or about April 1991, the
defendant entities agreed on a scheme to acquire control of the supply
of April Notes and to limit the supply of the issue in the cash and
financing markets in order to cause a squeeze. This scheme ensured that
persons who had sold notes short in the when-issued market or the post-
settlement cash market could obtain such notes only by purchasing them
at artificially high and non-competitive prices in the cash market or
by borrowing them at artificially low and non-competitive special rates
in the financing market. This course of conduct continued for a period
of time during which the defendant entities, with the assistance of
others, earned supracompetitive rates on transactions in the April
Notes.
Through numerous purchases made through various dealers, in the
when-issued market, the cash market and at auction, SMC and Caxton
obtained substantial positions in the April Notes. Indeed, from May
until mid-September 1991, the defendant entities controlled more than
the ``floating supply'' of the issue, giving them the power to cause
short sellers of the April Notes to fail to meet their security-
specific delivery obligations.
As part of the alleged scheme, SMC and Caxton conferred on the
subject of their activities or planned activities with respect to April
Notes. They exchanged information about the size of their positions,
the likely size of the short positions in the markets and ways to
finance positions so as to keep their notes from becoming available to
meet the demand for specials financing. The defendant entities gave
tacit assurances to each other that they would continue to hold their
substantial long positions in the April Notes, and would limit the
supply of April Notes they would make available to the cash and
financing markets from the positions they controlled.
The conspirators agreed to coordinate SMC's and Caxton's financing
efforts so as to restrict the supply of April Notes available in the
financing and cash markets. The conspirators began to implement their
squeeze on May 23, 1991.\4\ An essential part of the scheme
[[Page 3265]] involved the defendant entities entering into financing
agreements with two primary dealers to ensure that the supply of April
Notes available to shorts in the secondary markets would be reduced.
\4\The conspirators waited until May 23 to implement the squeeze
because the subsequent issue of two-year notes was auctioned on the
previous day. By waiting until the Treasury auctioned a succeeding
issue, the conspirators minimized the risk that the Treasury would
reopen the April-Note issue, which would have reduced or eliminated
their ability to control the supply of the issue. If the issue had
been reopened, the Treasury would have auctioned more notes with the
April Notes' CUSIP number, rather than auctioning notes with a new
CUSIP. Reopening would have effectively flooded the secondary
markets with increased supply of the issue, and would have eroded
the market power the conspirators had obtained through their
purchases of the April Notes.
---------------------------------------------------------------------------
SMC concentrated the financing of its position with one dealer, and
actively directed that dealer to withhold some or all of SMC's notes
from the financing and cash markets. For example, SMC directed the
dealer to refuse to make its notes available for special repo
transactions unless the repo rate had dropped below a certain level. At
other times, SMC ordered the dealer to refuse to make the notes
available at all for special financing transactions for periods of time
ranging from hours to days, with the intent and effect of causing unmet
demand that forced rates lower. For its part, Caxton financed a portion
of its April Notes in a series of transactions with another dealer in a
manner that largely caused a quantity of the notes to be withheld from
the cash market. Beginning in early August, 1991, SMC moved the
majority of its position to the dealer already financing the majority
of the Caxton position. This resulted in a renewed concentration of the
issue that enabled the dealer to drive down repo rates.
The coordinated withholding of supply allowed SMC and Caxton to
enrich themselves at the expense of other market participants both as a
result of low rates at which they were able to finance their securities
and as a result of cash sales at prices that were inflated by the
squeeze.
The conspiracy described above injured numerous persons who traded
the April Notes, especially those with short positions, by artificially
inflating prices for that issue in the cash market and repo rates in
the financing market. Further, the conspiracy had a dangerous
probability of damaging the Treasury of the United States. As noted in
the Joint Report on the Government Securities Market issued by the
Treasury, the SEC and the Federal Reserve Board, an acute, protracted
squeeze resulting from illegal coordinated conduct, such as the one
alleged here, ``can cause lasting damage to the marketplace, especially
if market participants attribute the shortage to market manipulation.
Dealers may be more reluctant to establish short positions in the
future, which could reduce liquidity and make it marginally more
difficult for the Treasury to distribute its securities without
disruption.''\5\
\5\See Department of the Treasury, Securities and Exchange
Commission, Board of Governors of the Federal Reserve System; Joint
Report on the Government Securities Market at 10 (Jan. 1992).
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III
Explanation of the Proposed Final Judgment
The United States and the defendant entities have stipulated that
the Court may enter the proposed Final Judgment after compliance with
the Antitrust Procedures and Penalties Act, 15 U.S.C. Sec. 16(b)-(h).
The proposed Final Judgment provides that its entry does not constitute
any evidence or admission by any party with respect to any issue of
fact or law. Under the provisions of Section 2(e) of the Antitrust
Procedures and Penalties Act, 15 U.S.C. Sec. 16(e), the proposed Final
Judgment may not be entered unless the Court finds that entry is in the
public interest. Paragraph VIII.E. of the proposed Final Judgment sets
forth such a finding.
The United States submits that the proposed Final Judgment is in
the public interest. The proposed Final Judgment contains injunctive
provisions that are remedial in nature and designed to assure that the
defendant entities will not engage in the future in the same or similar
anticompetitive practices as those employed in furtherance of their
conspiracy.
In addition, the proposed Final Judgment provides for a substantial
asset forfeiture that will act as a deterrent to future illegal conduct
and serve as a warning to others of the possible consequences of
similar illegal behavior. Pursuant to the proposed Final Judgment and
the Settlement Agreements attached hereto, SMC and Caxton will each pay
$12.5 million (plus interest accruing at a rate of 5.75% to the date of
payment) to the United States within five business days of the entry of
the Final Judgment. This payment reflects a cash settlement in lieu of
forfeiture of the securities held pursuant to the alleged conspiracy.
A. Global Settlement of Charges
On the same date that this action was filed, the Department of
Justice (``Department'') and the Securities and Exchange Commission
(``SEC``) announced a global settlement with SMC and Caxton that
resolves the defendant entities' liability under the antitrust and
securities laws with respect to the conduct alleged in the complaints
filed by the Department and the SEC. The terms of the settlement
provide that SMC pay a total of $40 million--$19 million in fines and
forfeitures and establish a $21 million disgorgement fund to be used to
compensate victims of its misconduct. The settlement also provides that
Caxton will pay a total of $36 million--$22 million in fines and
forfeitures and establish a $14 million disgorgement fund.
B. Specific Injunctive Provisions
The proposed Final Judgment prohibits the defendant entities from
agreeing with each other or with other persons to take certain actions
affecting the markets for Treasury securities. The prohibited
agreements are either impermissible under the antitrust laws, or were
determined during the Department's three-year investigation of the
Treasury securities markets to be significant mechanisms for
facilitating collusion. The proposed Final Judgment, however, is not
intended to discourage or prohibit normal communications between the
defendant entities and other participants in the markets for Treasury
securities. Traders in these markets often, and appropriately, exchange
views about events that may affect interest rates, and consequently,
the value of Treasury securities. Such an exchange of views, without
more, is not ordinarily harmful to competition.
1. Section III, Applicability
The proposed Final Judgment applies to the defendant entities and
each of their subsidiaries, officers, directors, employees, agents,
successors and assigns. It also applies to any entity for or in which
any person who is a shareholder in a defendant entity as of the date of
entry of the Final Judgment engages in or directs asset management or
investment advisory activities, whether directly or indirectly, that
involve transactions in the cash or financing markets (``related
entity''); and to all persons acting in concert with any defendant
entity that have actual notice of the Final Judgment. But the proposed
Final Judgment does not apply to any fund or other entity whose assets
are managed or invested in whole or in part by a defendant entity or by
a related entity.
This applicability provision ensures that the Final Judgment will
apply not only to the defendant entities, but also to any related
entity or any person [[Page 3266]] acting as an agent of a defendant
entity.\6\ It also applies to any existing or newly formed entity in
which a shareholder of one of the defendant entities has decisionmaking
or trading authority involving Treasury securities. This provision
ensures that the defendant entities will be unable to evade the terms
of the Final Judgment by conducting Treasury security trading through
some other entity. The Final Judgment, however, does not generally bind
other participants in the Treasury security markets who merely engage
in ordinary principal-to-principal counterparty trades with the
defendant entities.
\6\The complaint filed by the Department alleges that various
persons, not identified in the complaint, were co-conspirators along
with the defendant entities. These ``others,'' defined as being
within the collective category of ``conspirators'' in section I of
this Competitive Impact Statement, above, include certain persons
who acted directly as agents of one or the other of the defendant
entities in the trading and financing of the April Notes.
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2. Section IV, Prohibited Conduct
a. Subsection A generally prohibits defendant entities from
entering into agreements to restrain trade, within the meaning of the
antitrust laws, in the purchase, sale or financing of any issue in the
cash or financing markets. This subsection is to be construed by
reference to the defined terms used therein (e.g., ``agreeing''), and
by the general purpose of the antitrust laws as set forth in Section 1
of the Sherman Act, 15 U.S.C. Sec. 1, and the Federal case law
construing and interpreting the Sherman Act.
b. Subsection B prohibits defendant entities from entering into
agreements to purchase or sell an issue, or to refrain from purchasing
or selling an issue, through any particular person, subject to limited
exceptions, discussed below, contained in Subsections E and F.
Subsection B prohibits, for example, a defendant entity from agreeing
with another holder of an issue to coordinate its purchases or sales of
the issue by acquiring the issue only through particular primary
dealers, or by agreeing to spread out their coordinated purchases among
different dealers to conceal the size of their purchases and holdings.
The defendant entities acquired their positions in April Notes largely
from separate dealers, indicating possible coordination of their
acquisition strategies.
c. Subsection C prohibits defendant entities from agreeing with
another holder of an issue to withhold such other holder's position
from the cash or financing markets for any period of time. This
subsection, for example, prohibits a defendant entity from agreeing
that another holder of an issue will withhold the other holder's
position from the cash or financing markets. The Department has alleged
that a central component of the conspiracy charged in this case were
agreements between SMC and Caxton to withhold their positions from the
cash and financing markets in order to effectuate the squeeze of the
April Notes. The Department has identified only one circustance--
prevention of ``front-running''--in which one holder of an issue agrees
with another, competing holder, to withhold the other holder's position
in the same issue from the markets could possibly have a procompetitive
purpose. With the exception of preventing front-running, which is the
subject of a limited exception, discussed below, contained in
subsection F, this subsection contains an outright prohibition on a
defendant entity agreeing that another holder will restrict supply of
an issue by withholding the other holder's position from the cash or
financing markets.
d. Subsection D similarly prohibits the defendant entities from
agreeing with another holder of an issue to withhold the defendant
entity's position in the issue for the purpose of maintaining or
increasing the value of the other holder's position in the cash or
financing markets for any period of time. The limited purpose contained
within this subsection makes clear that a defendant entity may continue
to decide when and whether to trade or finance its own position.\7\ If,
however, the purpose of a defendant entity's withholding of a position
is to attempt to maintain or increase the value of the other holder's
position in the markets, that is prohibited. The Department has
identified no legitimate pro-competitive reason to agree to restrict
supply by withholding one's own position in an issue for the purpose of
benefitting another, ordinarily competing, holder of the same issue.
\7\Because of the current structure of trading and financing of
Treasury securities, investment funds such as the defendant entities
must ordinarily enter into agreements with counterparties to trade
or finance their positions, including perhaps agreements restricting
the timing or form of sales or financing. Thus, if the defendant
entities are to retain control over the manner in which they trade
or finance their positions, they must remain free to enter into
agreements with others that literally might involve ``withholding''
their positions for some period of time.
---------------------------------------------------------------------------
e. Subsection E makes clear subsection B is not intended to
prohibit customary practices in trading positions in Treasury
securities. Specifically, this subsection makes clear that nothing in
the proposed Final Judgment is intended to prohibit normal principal-
to-principal counterparty agreements to purchase or sell a position in
an issue.
f. Subsection F is an exception to subsections B and C that permits
a defendant entity to request (and obtain an agreement) that another
holder, such as a primary dealer, will not trade its position while
also endeavoring to transact a trade with or on behalf of a defendant
entity. This exception is intended to permit a defendant entity to
obtain commitments from primary dealers or other counterparties that
they will not engage in ``front running''\8\ or other self-dealing
actions to the detriment of the defendant entity while the counterparty
is effectuating the purchase, sale or financing of a position on behalf
of the defendant entity. This provision is necessary because, in the
ordinary course, non-dealer traders such as the defendant entities must
transact trades through persons such as primary dealers, who may also
be competing holders of the same issue. Merely requesting that the
counterparty to a transaction not engage in self-dealing while also
acting on behalf of a defendant entity should not, by itself, be
harmful to competition.
\8\``Front running'' occurs when a person, such as a dealer or
broker who has advance knowledge of another trader's intended
actions in the market, uses that advance knowledge to trade on his
own behalf ahead of the other trader. Thus, for example, if a dealer
were to learn that a defendant entity intended to make substantial
purchases of an issue through the dealer, so that the price of the
issue in the cash market would likely rise, the dealer could use
this advance knowledge to purchase the issue before the price begins
to rise, and then to sell the issue at the inflated price. Defendant
entities are not prohibited from obtaining commitments that a dealer
will not trade against them in this fashion before committing to
trade through the dealer.
---------------------------------------------------------------------------
3. Section V, Compliance Provisions
Section V of the proposed Final Judgment requires the defendant
entities to institute antitrust compliance programs. Each defendant
entity must appoint an antitrust compliance officer, who will be
responsible for monitoring the activities of all persons with
responsibility for trading or financing Treasury securities. The
antitrust compliance officer will also establish an antitrust
compliance program, including specific obligations described in this
section, designed to provide reasonable assurance that the defendant
entity will comply with the Final Judgment and the antitrust laws. The
antitrust compliance officer will certify to the Court and the
Assistant Attorney General in charge of the Antitrust Division within
forty-five days after entry of the Final Judgment that the defendant
entity has taken specified steps require by this
section. [[Page 3267]]
IV
Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages suffered, as well as costs and reasonable attorney's fees.
Pursuant to separate agreements reached by SMC and Caxton with the SEC
and the Department, the defendant entities will pay $35 million into a
fund to be available for damages claims from private parties that have
been injured by their conduct, including damages incurred as a
consequence of violations of the antitrust laws.\9\ Entry of the
proposed Final Judgment itself will neither impair not assist the
bringing of such actions. Under the provisions of Section 5(a) of the
Clayton Act, 15 U.S.C. 16(a), the Final Judgment has no prima facie
effect in any subsequent lawsuits that may be brought against SMC or
Caxton in this matter.
\9\The specific permitted grounds for successful claims against
the disgorgement fund and the mechanics of fund operation under the
auspices of the SEC are set forth in the Final Judgment of Permanent
Injunction and Other Relief as to each defendant entity, filed
contemporaneously with the SEC's complaint against SMC and Caxton.
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V
Procedures Available for Modification of the Proposed Final Judgment
As provided by the Antitrust Procedures and Penalties Act, any
person believing that the proposed Final Judgment should be modified
may submit written comments to John F. Greaney, Chief, Computers and
Finance Section, U.S. Department of Justice, Antitrust Division, 555
Fourth Street, NW., Room 9901, Washington, DC 20001, within the 60-day
period provided by the Act. These comments, and the Department's
responses, will be filed with the Court and published in the Federal
Register. All comments will be given due consideration by the
Department of Justice, which remains free to withdraw its consent to
the proposed Judgment at any time prior to entry. The proposed Final
Judgment provides that the Court retains jurisdiction over this action,
and the parties may apply to the Court for any order necessary or
appropriate for the modification interpretation or enforcement of the
Final Judgment.
VI
Alternatives to the Proposed Final Judgment
The proposed Final Judgment provides all the relief that the United
States sought in its complaint. The Department believes that litigation
on the allegations in the compliant would involve substantial cost to
the United States and is not warranted given the relief to be obtained
in the proposed Final Judgment. In specifying the relief set forth in
the proposed Final Judgment, the Department consulted with and
considered the views of experts in the Treasury securities field,
including the United States Department of the Treasury and the SEC. The
specific injunctive provisions are tailored to ensure that the
defendant entities will not engage in the same illegal conduct, and in
the event of violations, are enforceable through civil and criminal
contempt. Further, the payment by defendant entities under Section 6
represents the second-largest forfeiture or other penalty ever paid to
the government by defendants in a single antitrust case, and will
provide a substantial deterrent to future anticompetitive conduct in
the Treasury securities markets.
Another alternative to the proposed Final Judgment would be to
prosecute this conspiracy as a criminal violation of Section 1 of the
Sherman Act, 15 U.S.C. 1, rather than through a civil complaint. The
Department carefully considered this alternative. The Department
determined, in the exercise of its prosecutorial discretion, that
charging this matter as a civil violation was most appropriate. The
releases from criminal prosecution set forth in the Settlement
Agreements attached hereto merely confirm the Department's decision
that the case is more appropriately brought as a civil matter.
VII
Determinative Materials and Documents
No materials or documents of the type described in Section 2(b) of
the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b), were
considered in formulating the proposed Final Judgment.
Dated: December 16, 1994.
Anne K. Bingaman,
Assistant Attorney General, Antitrust Division.
Respectfully submitted,
Hays Gorey, Jr., HG1946,
Kenneth W. Gaul, KG2858
Attorneys, U.S. Department of Justice, Antitrust Division, Room 8104,
555 4th Street, NW., Washington, DC 20001, (202) 514-9602.
Certificate of Service
I, Kenneth W. Gaul, an attorney in the Department of Justice,
Antitrust Division, certify that on this date I have caused to be
served by hand the attached COMPETITIVE IMPACT STATEMENT upon the
following counsel for defendant entities in the matter of United States
v. Steinhardt Management Company, Inc. and Caxton Corporation, et al.
(94 Civ. ________).
Frederick P. Schaffer,
Shulte, Roth & Zabel, 900 Third Avenue, New York, NY 10022 (Counsel for
Steinhardt Management Company, Inc.)
Richard J. Wiener,
Caldwalader, Wickersham & Taft, 100 Maiden Lane, New York, NY 10038
(Counsel for Caxton Corporation).
Kenneth W. Gaul.
December 16, 1994.
United States District Court, Southern District of New York,
United States of America, Plaintiff, v. Steinhardt Management
Company, Inc.; and Caxton Corporation, Defendants, and $12,500,000
That is the Property of Steinhardt Management Company, Inc.;
Steinhardt Management Company, Inc., Real Party in Interest and
$12,500,000 That is the Property of Caxton Corporation, Caxton
Corporation, Real Party in Interest. 94 Civ. 9044.
Settlement Agreement
This Settlement Agreement (``Agreement'') is made between the
United States of America (``Plaintiff'') and Steinhardt Management
Company, Inc., (``SMC'').
1. This Agreement is made to resolve and forever to settle SMC's
liability under the antitrust laws for certain conduct to be alleged in
a Complaint to be filed by the United States pursuant to this
Agreement. Upon the fulfillment of the conditions set forth in this
Agreement, the releases described herein shall be effective.
2. On the date of execution of this Agreement,
(a) Plaintiff shall file a civil Complaint alleging a violation of
Section 1 of the Sherman Act, 15 U.S.C. Sec. 1, by SMC and others in
connection with the acquisition and trading of certain United States
Treasury notes;
(b) Plaintiff shall file a Final Judgment in the form attached as
Exhibit A, that, if entered by the Court, would resolve
[[Page 3268]] and settle the allegations of the Complaint filed
pursuant to subparagraph (a), above;
(c) Plaintiff and SMC shall execute and file a Stipulation and
Order in the form attached as Exhibit B, stipulating to the entry of a
Final Judgment in the form attached as Exhibit A.
3. In consideration of the sum of money to be forfeited by SMC
pursuant to the Final Judgment and other of the agreements set forth
therein, upon entry of the Final Judgment in the form attached as
Exhibit A, or in such other form as the Court may order requiring
payment of the civil forfeiture specified in paragraph 6(a), Plaintiff
releases SMC and its present and former officers, employees, directors
and subsidiaries, and any funds or accounts managed by SMC, from any
civil liability or claims whatsoever or any criminal liability for any
federal offense (a) which was committed prior to the date of this
Agreement and arose out of the purchase, sale, financing or trading of
the two-year United States Treasury notes issued in April 1991 or the
two-year United States Treasury notes issued in May 1991 (together,
``Specified Notes'') or (b) which arose out of any conduct known to the
Department of Justice or the Securities and Exchange Commission
(``SEC'') related to any investigation by the Department of Justice or
the SEC into the purchase, sale, financing or trading of the Specified
Notes, or into any efforts to interfere with, obstruct, mislead or
subvert any such investigation; provided, however, that nothing in this
Agreement shall apply to violations of the federal tax laws, Title 26,
United States Code.
4. Plaintiff and SMC recognize that the Court may enter a Final
Judgment only after the parties have complied with the provisions of
the Tunney Act, 15 U.S.C. Sec. 16 (b) through (g). The parties shall
use their best efforts to comply with the procedures of the Tunney Act
to ensure that a Final Judgment in the form attached as Exhibit A is
entered by the Court at the earliest practicable date. If the Court
should require modification to the Final Judgment before entering it,
SMC shall not unreasonably withhold its agreement to such modification.
5. The parties recognize that this Agreement is being made in
conjunction with the Consent and Undertakings of Defendants Steinhardt
Management Company, Inc. that SMC has entered into with the SEC (the
``SEC Consent'') in the form attached as Exhibit C, and that, upon
execution of the SEC Consent, the SEC will file against SMC a civil
complaint alleging violations of the securities laws, under the caption
Securities and Exchange Commission v. Steinhardt Management Company,
Inc. and Caxton Corporation (the ``Securities Case'').
6. Pursuant to this Agreement, the SEC Consent, and the Final
Judgment of Permanent Injunction and Other Relief as to Defendants
Steinhardt Management Company, Inc. in the Securities Case (the
``Securities Case Final Judgment'') in the form attached as Exhibit D,
SMC shall, at the times specified in paragraph 12 and as provided in
the Securities Case final judgment, pay the sum of $40 million as
follows:
(a) $19 million shall be paid to the United States of America. Of
this amount, $12.5 million shall constitute a civil forfeiture pursuant
to the Sherman Antitrust Act, 15 U.S.C. Sec. 6, and shall be paid to
the Department of Justice Asset Forfeiture Fund; the remaining $6.5
million shall constitute a civil penalty pursuant to Section 20(d) of
the Securities Act, 15 U.S.C. Sec. 77t(d), and Section 21(d)(3) of the
Exchange Act, 15 U.S.C. Sec. 78u(d)(3), and shall be paid to the
Treasurer of the United States;
(b) $21 million shall be paid into a disgorgement fund established
by court order in the Securities Case, upon terms established by the
Securities Case Final Judgment, as entered by the Court. This
disgorgement fund shall be administered and used as set forth in the
Securities Case Final Judgment.
Under no circumstances shall SMC be entitled to a refund of any
monies paid pursuant to this Agreement; provided that the foregoing
shall not preclude reimbursement of SMC from the disgorgement fund in
accordance with the procedures governing such fund, in respect of
certain third-party claims paid directly by SMC.
7. Should the Court for any reason not order all or any part of the
amount specified in paragraph 6(a) to be forfeited to the United
States, the difference between the amount ordered forfeited by the
Court in the captioned case and the amount specified to be forfeited to
the United States by paragraph 6(a), shall be paid to the Treasurer of
the United States pursuant to the Final Judgment in the Securities Case
under Section 20(d) of the Securities Act, 15 U.S.C. Sec. 77t(d), and
Section 21(d)(3) of the Exchange Act, 15 U.S.C. Sec. 78u(d)(3)
(``Additional Civil Penalty''). Upon the payment of the Additional
Civil Penalty, the releases described in paragraph 3 shall be
effective.
8. SMC understands that the United States has not waived the right
of any federal agency, with respect to SMC or any other person: (a) to
revoke or suspend any license, certificate, registration of or other
form of permission issued by such agency; (b) to impose any penalty or
to take any form of punitive or disciplinary action; or (c) to debar,
suspend, disqualify, or otherwise restrict or prohibit certain
transactions or other dealings with the United States or with any of
its agencies or departments.
9. SMC hereby waives any right it might have as a result of this
Agreement or any settlement arrangements contemplated hereby under the
United States Supreme Court's decision in United States v. Halper, 490
U.S. 435 (1989), or in respect of the subject matter of that case or
under any other existing or future decision relating to that subject
matter.
10. SMC neither admits nor denies any of the factual allegations
pertaining to the matters described in the Complaint to be filed
pursuant to paragraph 2, nor does SMC either admit or deny any legal
liability arising therefrom. Nothing in this Agreement or in the Final
Judgment or any Order contemplated hereby shall constitute a finding of
fact or conclusion of law or otherwise provide any basis for
establishing such liability.
11. SMC shall pay the civil penalty imposed by the Court in the
Securities Case and contribute the funds to establish the disgorgement
fund as specified in the Securities Case Final Judgment (collectively,
the ``Initial Payment''). Pursuant to this Agreement and the Tunney
Act, 15 U.S.C. Secs. 16(b) through (g), the forfeiture provided for in
the Final Judgment shall not be paid until five (5) business days after
SMC receives notice of entry of the Final Judgment, or such other order
as represents a final disposition of the captioned case. At that time,
in addition to the $12.5 million payment specified in the Final
Judgment (``Deferred Payment''), SMC shall forfeit an ``Additional
Amount,'' as defined below. The term ``Additional Amount'' shall mean
an amount representing interest on the Deferred Payment, computed on
the basis of a 365 day year, at a rate per annum of 5\3/4\%, from and
including the date of the Initial Payment, but excluding the date on
which the Deferred Payment is made. To the extent the Court does not
impose any portion of the Deferred Payment or the Additional Amount,
such amounts shall nonetheless be paid to the United States pursuant to
paragraph 7 at the time specified herein.
12. This Agreement, and all the terms and provisions hereof, shall
be binding on the parties hereto and their [[Page 3269]] respective
successors and assigns, and shall inure only to the benefit of the
parties hereto, and other person specifically released pursuant to
paragraph 3, and their respective successors and assigns, and no other
person shall be entitled to any benefits hereunder.
13. No additional understandings, promises, agreements and/or
conditions have been entered into by the parties hereto with respect to
the matters set forth in this Agreement other than those set forth
herein and none will be entered into unless in writing and signed by
all parties.
14. This Agreement may be executed in multiple counterparts, each
of which shall constitute an original, but all of which when taken
together shall constitute but one agreement.
15. This Agreement shall be deemed to have been fully executed and
delivered when both the United States, on the one hand, and SMC, on the
other, have received counterparts hereof executed on behalf of the
other party by each of the signatories for such other party set forth
on the signature pages hereof.
Agreed to:
December 14, 1994.
United States of America
John F. Greaney,
Chief, Computers and Finance Section, Antitrust Division, Department of
Justice.
December 15, 1994
Steinhardt Management Company, Inc.
Michael Steinhardt,
Chairman, Steinhardt Management Company, Inc.
United States District Court, Southern District of New York,
United States of America, Plaintiff, v. Steinhardt Management
Company, Inc.; and Caxton Corporation, Defendants, and $12,500,000
That is the Property of Steinhardt Management Company, Inc.;
Steinhardt Management Company, Inc., Real Party in Interest and
$12,500,000 That is the Property of Caxton Corporation, Caxton
Corporation, Real Party in Interest. 94 Civ. 9044.
Settlement Agreement
This Settlement Agreement (``Agreement'') is made between the
UNITED STATES OF AMERICA (``Plaintiff'') and CAXTON CORPORATION
(``Caxton'').
1. This Agreement is made to resolve and forever to settle Caxton's
liability under the antitrust laws for certain conduct to be alleged in
a Complaint to be filed by the United States pursuant to this
Agreement. Upon the fulfillment of the conditions set forth in this
Agreement, the releases described herein shall be effective.
2. On the date of execution of this Agreement,
(a) Plaintiff shall file a civil Complaint alleging a violation of
Section 1 of the Sherman Act, 15 U.S.C. Sec. 1, by Caxton and others in
connection with the acquisition and trading of certain United States
Treasury notes;
(b) Plaintiff shall file a Final Judgment in the form attached as
Exhibit A, that, if entered by the Court, would resolve and settle the
allegations of the Complaint filed pursuant to subparagraph (a), above;
(c) Plaintiff and Caxton shall execute and file a Stipulation and
Order in the form attached as Exhibit B, stipulating to the entry of a
Final Judgment in the form attached as Exhibit A.
3. In consideration of the sum of money to be forfeited by Caxton
pursuant to the Final Judgment and other of the agreements set forth
herein, upon entry of the Final Judgment in the form attached as
Exhibit A, or in such other form as the Court may order requiring
payment of the civil forfeiture specified in paragraph 6(a), Plaintiff
releases Caxton, Luttrell Capital Management, Inc. (``LCM''), and their
present and former officers, employees, directors and subsidiaries, and
any funds or accounts managed by Caxton or LCM, from any civil
liability or claims whatsoever or any criminal liability for any
federal offense which was committed prior to the date of this Agreement
and (a) which arose out of the purchase, sale, financing or trading of
the two-year United States Treasury notes issued in April 1991 or the
two-year United States Treasury notes issued in May 1991 (together,
``Specified Notes'') or (b) which arose out of any conduct known to the
Department of Justice or the Securities and Exchange Commission
(``SEC'') related to any investigation by the Department of Justice or
the SEC into the purchase, sale, financing or trading of the Specified
Notes, or into any efforts to interfere with, obstruct, mislead or
subvert any such investigation; provided, however that nothing in this
Agreement shall apply to violations of the federal tax laws, Title 26,
United States Code.
4. Plaintiff and Caxton recognize that the Court may enter a Final
Judgment only after the parties have complied with the provisions of
the Tunney Act, 15 U.S.C. Secs. 16 (b) through (g). The parties shall
use their best efforts to comply with the procedures of the Tunney Act
to ensure that a Final Judgment in the form attached as Exhibit A is
entered by the Court at the earliest practicable date. If the Court
should require modification to the Final Judgment before entering it,
Caxton shall not unreasonably withhold its agreement to such
modification.
5. The parties recognize that this Agreement is being made in
conjunction with the Consent and Undertakings of Defendant Caxton
Corporation that Caxton has entered into with the SEC (the ``SEC
Consent'') in the form attached as Exhibit C, and that, following
execution of the SEC Consent, the SEC will file against Caxton a civil
complaint alleging violations of the securities laws, under the caption
Securities and Exchange Commission v. Steinhardt Management Company,
Inc. and Caxton Corporation (the ``Securities Case'').
6. Pursuant to this Agreement, the SEC Consent, and the Final
Judgment of Permanent Injunction and Other Relief as to Defendant
Caxton Corporation in the Securities Case (the ``Securities Case Final
Judgment'') in the form attached as Exhibit D, Caxton shall, at the
times specified in paragraph 12 and as provided in the Securities Case
Final Judgment, pay the sum of $36 million as follows:
(a) $22 million shall be paid to the United States of America. Of
this amount, $12.5 million shall constitute a civil forfeiture pursuant
to the Sherman Antitrust Act, 15 U.S.C. Sec. 6, and shall be paid to
the Department of Justice Asset Forfeiture Fund; the remaining $9.5
million shall constitute a civil penalty pursuant to Section 20(d) of
the Securities Act, 15 U.S.C. Sec. 77t(d), and Section 21(d)(3) of the
Exchange Act, 15 U.S.C. Sec. 78u(d)(3), and shall be paid to the
Treasurer of the United States;
(b) $14 million shall be paid into a disgorgement fund established
by Court order in the Securities Case, upon terms established by the
Securities Case Final Judgment, as entered by the Court. This
disgorgement fund shall be administered and used as set forth in the
Securities Case Final Judgment.
Under no circumstances shall Caxton be entitled to a refund of any
monies paid pursuant to this Agreement; provided that the foregoing
shall not preclude reimbursement of Caxton from the disgorgement fund
in accordance with the procedures governing such fund, in respect of
certain third-party claims paid directly by Caxton.
7. Should the Court for any reason not order all or any part of the
amount specified in paragraph 6(a) to be forfeited to the United
States, the difference between the amount ordered forfeited by the
Court in the captioned case and the amount specified to be forfeited to
the United States by paragraph 6(a), shall be paid to the Treasurer of
the United States pursuant [[Page 3270]] to the Final Judgment in the
Securities Case under Section 20(d) of the Securities Act, 15 U.S.C.
Sec. 77t(d), and Section 21(d)(3) of the Exchange Act, 15 U.S.C.
Sec. 78u(d)(3) (``Additional Civil Penalty''). Upon the payment of the
Additional Civil Penalty, the releases described in paragraph 3 shall
be effective.
8. Caxton understands that the United States has not waived the
right of any federal agency, with respect to Caxton or any other
person: (a) to revoke or suspend any license, certificate, registration
or other form of permission issued by such agency; (b) to impose any
penalty or to take any form of punitive or disciplinary action; or (c)
to debar, suspend, disqualify, or otherwise restrict or prohibit
certain transactions or other dealings with the United States or with
any of its agencies or departments.
9. Caxton hereby waives any right it might have as a result of this
Agreement or any settlement arrangements contemplated hereby under the
United States Supreme Court's decision in United States v. Halper, 490
U.S. 435 (1989), or in respect of the subject matter of that case or
under any other existing or future decision relating to that subject
matter.
10. Caxton neither admits nor denies any of the factual allegations
pertaining to the matters described in the Complaint to be filed
pursuant to paragraph 2, nor does Caxton either admit or deny any legal
liability arising therefrom. Nothing in this Agreement or in the Final
Judgment or any Order contemplated hereby shall constitute a finding of
fact or conclusion of law or otherwise provide any basis for
establishing such liability.
11. Caxton shall pay the civil penalty imposed by the Court in the
Securities Case and contribute the funds to establish the disgorgement
fund as specified in the Securities Case Final Judgment (collectively,
the ``Initial Payment''). Pursuant to this Agreement and the Tunney
Act, 15 U.S.C. Secs. 16 (b) through (g), the forfeiture provided for in
the Final Judgment shall not be paid until five (5) business days after
Caxton receives notice of entry of the Final Judgment, or such other
order as represents a final disposition of the captioned case. At that
time, in addition to the $12.5 million payment specified in the Final
Judgment (``Deferred Payment''), Caxton shall forfeit an ``Additional
Amount,'' as defined below. The term ``Additional Amount'' shall mean
an amount representing interest on the Deferred Payment, computed on
the basis of a 365 day year, at a rate per annum of 5\3/4\%, from and
including the date of the Initial Payment, but excluding the date on
which the Deferred Payment is made. To the extent the Court does not
impose any portion of the Deferred Payment or the Additional Amount,
such amounts shall nonetheless be paid to the United States pursuant to
paragraph 7 at the time specified herein.
12. This Agreement, and all the terms and provisions hereof, shall
be binding on the parties hereto and their respective successors and
assigns, and shall inure only to the benefit of the parties hereto, and
other persons specifically released pursuant to paragraph 3, and their
respective successors and assigns, and no other person shall be
entitled to any benefits hereunder.
13. No additional understandings, promises, agreements and/or
conditions have been entered into by the parties hereto with respect to
the matters set forth in this Agreement other than those set forth
herein and none will be entered into unless in writing and signed by
all parties.
14. This Agreement may be executed in multiple counterparts, each
of which shall constitute an original, but all of which when taken
together shall constitute but one agreement.
15. This Agreement shall be deemed to have been fully executed and
delivered when both the United States, on the one hand, and Caxton, on
the other, have received counterparts hereof executed on behalf of the
other party by each of the signatories for such other party set forth
on the signature pages hereof.
Agreed to:
December 14, 1994.
United States of America
John F. Greaney,
Chief, Computers and Finance Section, Antitrust Division, Department of
Justice.
Caxton Corporation
December 15, 1994.
Peter P. D'Angelo,
President, Caxton Corporation.
[FR Doc. 95-781 Filed 1-12-95; 8:45 am]
BILLING CODE 4410-01-M
