Rio Tinto and former bosses hit with United States fraud charges

SEC.gov | Rio Tinto, Former Top Executives Charged With Fraud

The FCA has also slapped Rio with a fine of more than £27.4m for breaching disclosure and transparency rules, alleging its financial reporting had been "inaccurate and misleading". The second acquisition was also unsuccessful as it was based on the incorrect assumption that Rio Tinto could inexpensively mine, transport, and sell large quantities of high-quality coal, chiefly using barges for shipping.

Rio Tinto raised $5.5 billion from USA investors, approximately $3 billion of which was raised after May 2012, when executives at Rio Tinto Coal Mozambique had already told Albanese and Elliott that the subsidiary was likely worth negative $680 million. Knowledge Leaders Capital LLC raised its position in Rio Tinto PLC by 126.0% during the 2nd quarter.

"As alleged in our complaint, Rio Tinto's top executives allegedly breached their disclosure obligations and corporate duties by hiding from their board, auditor, and investors the crucial fact that a multi-billion dollar transaction was a failure", said Stephanie Avakian, Co-Director of the SEC's Enforcement Division.

The SEC's civil complaint to the US District Court for the Southern District of NY said the fraud occurred when it failed to impair the RTCM assets in its 2011 year-end accounts in February 2012 and its interim results in August 2012.

In its complaint filed Tuesday, the SEC accused Rio Tinto, Albanese and Elliott of trying "to hide the rapid and dramatic decline in value" of the coal business.

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. The SEC seeks permanent injunctions, return of allegedly ill-gotten gains plus interest, and civil penalties from all the defendants, and seeks to bar Albanese and Elliott from serving as public company officers or directors.

"They tried to save their own careers at the expense of investors by hiding the truth", Paikin said. On Wednesday after the announcement of the charges, FTSE 100-listed oil major Royal Dutch Shell PLC said that Elliott had stepped down as non-executive director with immediate effect.

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Rio Tinto said it meant to "vigorously defend itself" against the "unwarranted" U.S. charges and said that the action in the United Kingdom by the FCA had made "no findings of fraud, or of any systemic or widespread failure" by the company.

In a statement, Shell said: "We hope he satisfactorily resolves those proceedings and, that in that event, he would like to be considered for rejoining the Board".

It was not until January 2013 that the company announced an impairment, writing off about 80% of the value of the investment. (The) set a GBX 3,000 ($39.86) target price on shares of Rio Tinto plc and gave the company a neutral rating in a report on Tuesday, August 15th.

The company allegedly anticipated exporting 40 million tons of coal per year by barging the majority of the coal product down the Zambezi River to a port on the Indian Ocean, but the Mozambique government rejected Rio Tinto's proposal to barge coal down the river.

Mark Steward, executive director of enforcement and market oversight, said the fine demonstrated how "vitally important" high standards of disclosure and transparency were.

"The FCA made no findings of fraud, or of any systemic or widespread failure", the company added. ValuEngine upgraded shares of Rio Tinto PLC from a "buy" rating to a "strong-buy" rating in a report on Thursday, July 6th. It added that the case was now closed.

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