The U.S. Securities and Exchange Commission on Tuesday charged mining firm Rio Tinto Plc and two of its former top executives with fraud, saying that they inflated the value of coal resources in Mozambique obtained for $3.7-billion and marketed a couple of years later for $50-million.
The U.K.’s Financial Conduct Authority also said Tuesday it had reached a settlement with Rio Tinto under which the business might pay a fine of #27 million ($35.6-million) to settle claims that it violated accounting rules in relation with the Mozambique assets.
In a lawsuit filed in U.S. federal court in Manhattan, the SEC stated Rio Tinto, former Chief Executive Officer Thomas Albanese, and former Chief Financial Officer Guy Elliott failed to follow accounting standards and company policies to correctly value and record the resources.
The lawsuit centers around Rio Tinto’s 2011 purchase of Mozambique coal explorer Riversdale Mining for $3.7-billion. The SEC reported that shortly after the deal has been completed, Rio Tinto discovered that the acquisition would yield less coal, and of a lesser amount, than anticipated.
The securities regulator said Rio Tinto hidden the issues with the deal, in part because Rio Tinto had disclosed enormous losses in relation to its 2007 acquisition of Alcan. Making public another collapse “would call into question Albanese’s and Elliott’s capacity to pursue the heart of Rio Tinto’s business model,” the SEC said in its complaint.
By making misleading public statements, Rio Tinto and the executives could raise $5.5-billion from U.S. investors, the SEC said. They continued to solicit the investments after executives of the Mozambique subsidiary told Albanese and Elliott that the unit was probably worth negative $680-million, according to the SEC.
The SEC said the fraud lasted until January 2013, when another executive discovered accounting irregularities. Albanese subsequently resigned, and the Mozambique subsidiary was sold for only $50-million, the SEC said.
“There isn’t any fact in any of these charges,” Albanese said in a statement.
Christina Mills, a spokeswoman for Elliott, said Elliott would vigorously contest the charges.
Rio Tinto said it would defend itself vigorously against the SEC’s allegations. The company said the U.K. FCA had “made no signs of fraud, or of any systemic or widespread failure by Rio Tinto.”
Additionally, it revealed that the Australian Securities and Investments Commission was looking into its accounting of the Mozambique assets.