The mining giant and two of its top executives, former chief executive Tom Albanese and chief financial officer Guy Elliot, have been accused by New York’s Securities and Exchange Commission (SEC) of hiding the failure of its $3.7bn investment in the Mozambique mine from investors which suffered “one setback after another”.
In a complaint filed on Wednesday, the SEC said Rio found the quality of the coal and the quantity to be much lower than it had first thought, and that combined with Mozambique’s refusal to allow Rio to transport the coal by barge, its value was “significantly eroded”.
The multi-billion dollar investment was in fact valued at a negative $680m in 2012 and later sold off for just $50m.
The SEC alleges Rio hid the setbacks from investors to save its reputation after already disclosing further huge losses in its earlier acquisition of Alcan.
It has charged the firm, along with Albanese and Elliot, with violating the antifraud, reporting, books and records and internal controls provisions of federal securities laws.
“Rio Tinto’s top executives allegedly breached their disclosure obligations and corporate duties by hiding from their board, auditor, and investors the crucial fact that a multi-billion dollar transaction was a failure,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division.
FCA settles record fine
The FCA has also slapped Rio with a fine of more than £27.4m for breaching disclosure and transparency rules, alleging its financial reporting had been “inaccurate and misleading”.
It marks the largest fine of its kind imposed by the regulator to date after Rio failed to conduct an impairment test and did not recognise the falling value of the coal in its 2012 interim results.
The impairment was later reflected in Rio Tinto’s 2012 year-end accounts published in January 2013, which knocked 80% off the initial value of the investment.
Standards failure
Mark Steward, executive director of enforcement and market oversight, said the fine demonstrated how “vitally important” high standards of disclosure and transparency were.
“The UK listing regime requires listed companies to adhere to high standards of disclosure and transparency. Rio Tinto should have been aware of its obligation to carry out the impairment test and the resulting material impairment should have been reported to the market at its half year results in 2012,” he said.
Rio Tinto said it intended to vigorously defend itself against the allegation and pointed out that the FCA’s investigation found no evidence of fraud or widespread failure.
“Rio Tinto believes that the SEC case is unwarranted and that, when all the facts are considered by the court, or if necessary by a jury, the SEC’s claims will be rejected,” the firm said in a statement on Wednesday morning.
The miner’s share price had recovered from an initial 1.4% drop in early trading on Wednesday, but remained down by 0.4% around 9am.
