SEC Sues Rio Tinto, Two Former Executives -- Update
October 17 2017 - 7:53PM
Dow Jones News
By Dave Michaels
U.S. regulators on Tuesday sued Rio Tinto PLC and two former top
executives over claims they misled investors about the value of
Mozambique coal assets obtained in a disastrous acquisition that
caused huge losses for the global mining giant.
Rio Tinto continued to value the mining assets in Mozambique at
more than $3 billion despite an internal assessment that they were
worth negative $680 million, according to a lawsuit filed in
Manhattan federal court. The SEC's lawsuit alleges that former
Chief Executive Thomas Albanese and former Chief Financial Officer
Guy Elliott knew about the project's rapidly declining value but
didn't disclose it to investors and misled their board of directors
about the scope of the problems, the SEC said.
The SEC is pursuing civil monetary penalties and disgorgement of
ill-gotten gains through its lawsuit, and seeking a bar on Messrs.
Albanese and Elliott from serving as officers or directors of a
public company. The regulator's investigation began in 2013, Rio
Tinto disclosed in December, when the firm said it was cooperating
with the probe.
Rio Tinto said Tuesday that the SEC's claims of fraud are
"unwarranted" and would be proven wrong in court. Mr. Albanese said
he is innocent of any wrongdoing and that the SEC's claims "will be
proved baseless." A spokeswoman for Mr. Elliott said he also
disputes the SEC's charges and will fight them.
Separately, Rio Tinto agreed to pay GBP27 million to settle
claims by the U.K. Financial Conduct Authority that the company
didn't write down the value of the Mozambique mine in a timely
manner. The U.K. regulator's action didn't find that Rio Tinto
committed fraud, the company said in a press release.
Mr. Albanese stepped down in 2013 as Rio Tinto said it would
write off roughly $14 billion in the value of various assets,
including the Mozambique coal operations it acquired in 2011
through its $3.7 billion takeover of Riversdale Mining Ltd. The $14
billion figure included a huge impairment recognized on the value
of Alcan Inc., an aluminum processing company that Rio Tinto
acquired in 2007.
The SEC alleged that Messrs. Albanese and Elliott didn't
disclose the problems with the Mozambique assets because they had
already written down the value of Alcan and feared the market's
reaction to another unsuccessful deal. The project hit several
major setbacks, including the Mozambique government's rejection of
transport plans for the coal. The company knew by the end of 2011
that it could sell only about 5% of the coal that it had originally
assumed, the SEC alleged.
The SEC said that disclosing the setbacks would have required
Rio Tinto to consider by how much to write down the assets. The
company later raised $3 billion through debt sold to investors
without revealing the problems with the Mozambique assets, the SEC
said.
The company finally wrote down the value of the Mozambique coal
business by more than $3 billion in early 2013, when Mr. Albanese
agreed to step down, the SEC said in its complaint. Rio Tinto sold
the Mozambique coal business in 2014 for $50 million, or about 2%
of what it paid, the SEC said.
"Rio Tinto and its top executives allegedly failed to come clean
about an unsuccessful deal that was made under their watch," said
Steven Peikin, co-director of the SEC's enforcement division. "They
tried to save their own careers at the expense of investors by
hiding the truth."
Write to Dave Michaels at dave.michaels@wsj.com
(END) Dow Jones Newswires
October 17, 2017 19:38 ET (23:38 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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