Rio Tinto, Former Top Executives Charged With Fraud

Ivan Schwartz
October 19, 2017

Following an investigation, the FCA found that Rio Tinto breached the Disclosure Rules by failing to carry out an impairment test and to recognise an impairment loss on the value of mining assets based in the Republic of Mozambique which it acquired in August 2011 for US$3.7 billion when publishing its 2012 interim results.

"Rio Tinto raised a total of $5.5 billion in US debt offerings that incorporated materially misleading statements and omissions concerning RTCM's valuation", the lawsuit alleges.

Rio Tinto said in the past it hoped to produce 1 million tonnes (mt) of coal from the $500m Benga mine in its 2012 financial year, growing to 1.5mt in 2013.

After a second reduction, Rio Tinto sold its Mozambique subsidiary for $50 million, far below the $3.7 billion acquisition price.

In a statement, Rio Tinto said it would "vigorously defend itself" in the SEC case. Shortly after acquiring the assets, the company discovered only a third of its maximum coal production could be transported that way with higher-cost transport alternatives being required to transport the remainder.

The SEC demands that Rio Tinto, former CEO Thomas Albanese and former CFO Guy Elliott disgorge all ill-gotten gains, in addition to paying prejudgment interest and civil penalties.

The Anglo-Australian mining company stands accused of hiding losses by inflating the value of its African coal assets in Mozambique. "They tried to save their own careers at the expense of investors by hiding the truth", said Steven Peikin, Co-Director of the SEC's Enforcement Division. 2013 - Albanese resigns at request of board.

As a result of the charges, Guy Elliott has resigned from his new job as non-executive director of oil giant Royal Dutch Shell.

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The UK's Financial Conduct Authority also last night hit the miner with a £27m fine to settle claims it breached accounting rules in connection with the Mozambique assets.

Rio Tinto said it meant to "vigorously defend itself" against the "unwarranted" U.S. charges and said that the action in the United Kingdom by the FCA had made "no findings of fraud, or of any systemic or widespread failure" by the company. 2014 - Rio Tinto sells Mozambique coal assets for $50 million. The FCA therefore argued that Rio Tinto had "inaccurate and misleading" financial reporting until it impaired its assets in January.

The FCA had determined that Rio Tinto should have carried out an impairment review in relation to RTCM for its 2012 interim results and, if it had done so, those results published in August 2012 would have reflected the impairment it recorded six months later.

"Rio Tinto and its top executives allegedly failed to come clean about an unsuccessful deal that was made under their watch".

He added: "This is the largest fine imposed to date by the FCA for a breach of rules related to a firm's official listing and demonstrates how vitally important high standards of disclosure and transparency are to ensuring markets function fairly and efficiently". 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.

"The FCA made no findings of fraud, or of any systemic or widespread failure by Rio Tinto".

Rio Tinto plc, Rio Tinto Limited, Albanese, and Elliott are charged with violating the antifraud, reporting, books and records and internal controls provisions of U.S. federal securities laws. It added that the case was now closed.

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