US SEC charges Rio Tinto and former execs

Andrew Cummings
October 18, 2017

Guy Elliott resigned this morning with immediate effect after the US Securities and Exchange Commission (SEC) charged Rio Tinto, Elliott and Rio's former chief executive Thomas Albanese with fraud late last night.

Rio Tinto confirmed in December it was under investigation by the SEC over RCTM.

It found that Rio Tinto failed to carry out an "impairment test" and recognise a write-down in the value of the assets when publishing half-year results in August 2012.

The world's second biggest miner vowed to "vigorously" defend the allegations.

In a lawsuit filed in USA federal court in Manhattan, the SEC said Rio Tinto, former Chief Executive Officer Thomas Albanese, and former Chief Financial Officer Guy Elliott failed to follow accounting standards and company policies to accurately value and record the assets.

The Anglo-Australian giant bought its Mozambique assets for US$3.7 billion in 2011 and sold them for just US$50 million three years later, forced to write off $US3.0 billion from its value.

The miner said that case was now closed, and the FCA had made "no findings of fraud, or of any systemic or widespread failure by Rio Tinto".

The Financial Conduct Authority (FCA) said it was the highest fine it had issued to date for a breach of rules under which listed firms operate.

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 is also seeking to bar Albanese and Elliott from serving as public company officers or directors.

Mark Steward, FCA executive director of enforcement and market oversight, said: 'The UK listing regime requires listed companies to adhere to high standards of disclosure and transparency. As a result the assets were recorded at their acquisition price in the 2012 interim results published 12 months after the transaction and the losses were only brought to light in January 2013 when the company announced it had written off around 80% of its investment.

In Australia, the Australian Securities and Investments Commission is also conducting a review of the impairment of Rio's Mozambique coal assets.

According to the SEC's complaint, Rio acquired the Mozambique projects shortly after disclosing huge losses at its previous large-scale acquisition, Alcan.

So instead, the SEC alleges, "they concealed the adverse developments, allowing Rio Tinto to release misleading financial statements days before a series of United States debt offerings".

Rio Tinto has been handed a £27m fine by the financial regulator over a "serious lack of judgement" in reporting the value of mining assets in Mozambique.

Had Rio Tinto complied with its obligation to carry out the test, a material impairment would have been required to have been disclosed at the time of its 2012 half year financial reporting.

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