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 [email protected]