The U.S. Securities and Exchange Commission charged Rio Tinto and two of its former executives with fraud for allegedly violating the reporting, books and records, and internal controls provisions of federal securities laws related to an acquisition of coal assets in Mozambique.
Rio Tinto's former CEO Thomas Albanese and former CFO Guy Elliott are accused of inflating the value of coal assets acquired in Mozambique for $3.7 billion.
When the project began suffering setbacks related to a drop in quantity and quality of coal and a rejected barge application, the value of the acquisition dropped significantly. According to the SEC, Albanese and Elliot sought to hide the adverse development of the project and raised $5.5 billion from U.S. investors, including roughly $3 billion 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.
"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," Stephanie Avakian, co-director of the SEC's Enforcement Division, said in an Oct. 17 release.
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.
In January 2013, Albanese stepped down and Rio Tinto recorded a write-down of about $3 billion, or more than 80%, for the project. After a second reduction, Rio Tinto sold the Mozambique subsidiary for $50 million, billions of dollars below the acquisition price.