In a major development, Rio Tinto has agreed to pay a $28 million fine to settle a fraud complaint brought by the U.S. Securities and Exchange Commission (SEC). This agreement, announced recently, puts an end to a civil lawsuit initiated in October 2017.
The case concerned the disputed management of a failed investment in a coal project in Mozambique. Under the terms of the agreement, which must still be approved by U.S. District Judge Analisa Torres, Rio Tinto also undertakes not to violate the record-keeping and reporting rules of the federal securities laws. In addition, the company will be required to engage an independent consultant for two years to ensure that asset impairment is properly accounted for.
Tom Albanese and Guy Elliott’s role in the affair
Former Rio Tinto CEO Tom Albanese has agreed to pay a $50,000 civil penalty to settle related SEC charges. Neither he nor Rio Tinto have admitted any wrongdoing in this matter. Moreover, their decision not to comment further highlights the complexity of the case.
Guy Elliott, former CFO of Rio Tinto, remains a defendant. His lawyer recently asked for the remaining SEC charges to be dismissed, claiming that they could not be proven. The defendants were accused of misleading investors about the value of Rio Tinto Coal Mozambique (RTCM), acquired for $3.7 billion.
Financial and regulatory consequences for Rio Tinto
According to the SEC, Rio Tinto succeeded in raising over $5.5 billion from US investors, despite an internal valuation that valued the assets negatively at $680 million. However, the regulations state that Albanese aimed to mislead investors in 2012 by presenting the Moatize Basin as a world-class coal deposit.
Rio Tinto booked an impairment of over $3 billion for Mozambique in January 2013, and sold the assets at the end of 2014 for $50 million.
This case highlights the ethical and regulatory challenges facing major companies in the mining sector. Indeed, it reveals the far-reaching consequences of managing risky investments, and underlines the need for greater transparency in financial reporting.
This case underlines the importance of ethics and transparency in the mining sector. The fine imposed on Rio Tinto and the need for a settlement reflect the challenges and consequences of managing high-risk investments.
