SEC CHARGES MINING COMPANY AND FORMER EXECUTIVES WITH FRAUD
November 3, 2017 |
In October 2017, the U.S. Securities and Exchange Commission (SEC) charged mining company Rio Tinto, its former CEO Thomas Albanese, and its former CFO Guy Elliott, with fraud for falsely overstating to investors the value of coal assets the company had acquired. While the company had raised $5.5 billion from U.S. investors and spent $3.7 billion to acquire coal assets in Mozambique, those assets were only worth a small fraction of the price that was paid — a fact that the company and the two executives purportedly hid from investors for several years in an effort to save their own careers.
According to the SEC’s Complaint — filed in federal court in Manhattan — Rio Tinto acquired Alcan, an aluminum processing company, for approximately $38 billion in 2007. The acquisition was an unmitigated disaster that, within six years, required the company to write off substantially all of Alcan’s acquisition value. Notwithstanding the impairments that vitiated the value of that acquisition, the company, Albanese, and Elliott are alleged to have repeated many of those same mistakes with their $3.7 billion acquisition of the Mozanbican coal business in 2011. Moreover, as the coal business suffered one setback after another that caused a progressive and rapid decline in the value of the coal assets, Albanese and Elliott purportedly hid from their board, the company’s auditor, and investors the fact that the Mozanbican acquisition was a failure and was not worth nearly what the company had paid for it. The SEC alleges that Albanese and Elliott engaged in this cover-up to save their careers, employing a wide variety of falsehoods including misleading financial statements and intentionally false positive outlooks in public statements. Ultimately, the Mozanbican coal business that was purchased for $3.7 billion was sold a few years later for only $50 million.
The Complaint charges Rio Tinto plc, Rio Tinto Limited, Albanese, and Elliott with violating the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws. The SEC has requested that the Court enter permanent injunctions, order a return of allegedly ill-gotten gains plus interest, and impose civil penalties against all of the defendants along with having Albanese and Elliott barred from serving as public company officers or directors.
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See the SEC’s Complaint:
SEC v. Rio Tinto plc, et al .
