United States v. Steinhardt Management Company, Inc.; and Caxton Corporation; Proposed Final Judgment and Competitive Impact Statement

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.

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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.

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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.

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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