Regulators take legal action against miner for overstating value of coal assets in Africa as two former top executives are accused of hiding losses
Anglo-Australian mining giant Rio Tinto has been charged with fraud in the US and fined £27.4m in the UK after being accused of overstating the value of African coal assets.
The FTSE 100 company and two of its top former executives were charged in the US of hiding losses by inflating the value of assets in Mozambique, which Rio bought in 2011 for $3.7bn ($2.8bn) and sold a few years later for $50m.
America’s financial regulator, the Securities and and Exchange Commission, filed a complaint in federal court in Manhattan. It alleges that Rio Tinto, its former chief executive, Tom Albanese, and its former chief financial officer, Guy Elliott, failed to follow accounting standards and company policies to accurately value and record its 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.
“Rio Tinto and its top executives allegedly failed to come clean about an unsuccessful deal that was made under their watch. 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.
The miner said it intends to “vigorously defend itself” against the allegations.
“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 in a statement.
Shell announced that Elliott was immediately leaving his position as a non-executive director at the Anglo-Dutch oil company as a result of his involvement in the legal case.
“We sincerely hope he satisfactorily resolves those proceedings and, that in that event, he would like to be considered for rejoining the board,” said Charles Holliday, Shell’s chairman.
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 is the largest fine imposed by the Financial Conduct Authority on a company for a breach of rules relating to a firm’s official listing.
The Financial Conduct Authority said the fine would have been bigger at £39.1m but the penalty was reduced because Rio Tinto agreed to settle at an early stage.
Rio failed to carry out an impairment test and to recognise an impairment loss on the value of mining assets, which should have been disclosed in 2012 half-year results, the FCA said.
“The UK listing regime requires listed companies to adhere to high standards of disclosure and transparency,” said Mark Steward, executive director of enforcement and market oversight at the FCA. “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.”