Rio Tinto hit with record FCA fine and United States fraud charges
19 October, 2017, 00:27 | Author: Terri Saunders
The Securities and Exchange Commission (SEC) has filed a complaint in a federal court in NY alleging that Rio, Albanese, and former finance director Guy Elliott, deliberately inflated the value of the assets.
As the project began to suffer setbacks, resulting in the rapid decline of the value of the coal assets, Albanese and Elliott sought to hide or delay disclosure of the nature and extent of the adverse developments from Rio Tinto's board of directors, auditors, and investors, the SEC alleges.
The SEC filing is seeking to achieve permanent injunctions, return of allegedly ill-gotten gains plus interest, civil penalties from all the defendants, and to bar Albanese and Elliott from serving as public company officers or directors.
In a statement, Rio Tinto said it would "vigorously defend itself" in the SEC case.
The mining giant continued to value the business at more than $3 billion through 2011 and 2012 even after discovering early on that it could sell "only about five percent" of the coal it had originally anticipated, and that the mine had "significantly less and lower quality coal" than it initially assumed, the SEC complaint states. "They tried to save their own careers at the expense of investors by hiding the truth", SEC Enforcement Division co-director Steven Peikin said.
Rio Tinto bought into Mozambique's coking coal district in 2011 when it raised its initial $3.5bn bid for Riversdale Mining to $3.9bn in an effort to win over the last remaining shareholders who had been holding up the transaction. Between 2014 and August Albanese served as CEO of of FTSE 250-listed miner Vedanta Resources PLC.
As a result of the charges, Mr Elliott stood down from his role as a non-executive director at oil group Royal Dutch Shell.
"We fully respect and appreciate Guy's decision which is related to his involvement in legal proceedings regarding his former employment at Rio Tinto", Shell chairman Charles Holliday said in a statement.
The lawsuit accuses the Australian-British multinational corporation and former company executives of 12 counts of federal securities violations.
The company added: "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".
America's financial regulator, the Securities and and Exchange Commission, filed a complaint in federal court in Manhattan.
Rio Tinto was separately fined £27.4m by the UK's financial watchdog for breaching disclosure and transparency rules over its handling of the Mozambique mining assets.
It was not until January 2013 that the company announced an impairment, writing off about 80% of the value of the investment.
Morgan Stanley set a GBX 3,700 ($49.16) price objective on Rio Tinto plc (LON:RIO) in a research report report published on Tuesday.
The FCA said that Rio Tinto, had it complied with its obligation to carry out an impairment test, would have impaired RTCM in its August 2012 half year results.
"Rio Tinto's financial reporting was therefore inaccurate and misleading", the FCA said.
"Reflecting the size of the company, 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 ensuring our markets function fairly and effectively".
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