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SEC and FCA charge Rio Tinto for misleading investors


One of the world’s largest mining companies, Anglo-Australian Rio Tinto and two former senior executives were hit with US fraud charges as well as a large penalty in the UK for allegedly trying to hide a multibillion-dollar business failure from investors.

Both the US and UK charges relate to Mozambican assets the miner bought in 2011 for $3.7bn and sold them a few years later for $50m.

In a civil complaint filed in federal court in New York, the Securities and Exchange Commission said that Rio, Tom Albanese, its former chief executive, and Guy Elliott, a former chief financial officer, ignored proper accounting standards and misled investors in their valuation of the coal deposits the company purchased. “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 multibillion-dollar transaction was a failure,” said Stephanie Avakian, co-director of the SEC’s enforcement division.

The SEC argues that soon after the deal was completed, Rio Tinto learned that the projects would produce less coal, and of a lower quantity, than expected.

The mining company has said it will “vigorously defend” the charges. “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 company said.

The commission is seeking injunctive relief, disgorgement of ill-gotten gains, civil penalties and interest, and a bar on Albanese and Elliott serving as officers or directors of a public company. Thanks to the executives’ deceit, Rio Tinto raised $5.5bn in US debt offerings, including $3bn in a debt sale shortly after they learned that the business had “no economic value,” the SEC said.

The firm was also fined £27m by UK authorities for breaching disclosure rules over the African coal purchase. The Financial Conduct Authority (FCA) fined Rio for failing to carry out an impairment test and to recognise a loss on the value of the coal unit when it published half-year results in 2012. “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,” said Mark Steward, executive director of enforcement and Market oversight at the FCA. “This is the largest fine imposed to date by the FCA for a breach of rules relating to a firm’s official listing and demonstrates how vitally important high standards of disclosure and transparency are to ensure our markets function fairly and effectively.”

As Rio agreed to settle at an early stage in the investigation the FCA said it had qualified for a 30 per cent reduction in penalty. Were it not for this discount the FCA would have imposed a fine of £39m.