Rio Tinto faces fraud charges over Mozambique coal investment

Tom Albanese the former chief executive of Rio Tinto is alleged to have concealed the true value of a failed coal acquisition in Mozambique

Tom Albanese the former chief executive of Rio Tinto is alleged to have concealed the true value of a failed coal acquisition in Mozambique

According to the SEC's complaint, in 2011, Rio Tinto acquired coal assets in Mozambique shortly after disclosing huge losses associated with its previous large-scale acquisition of Alcan.

The Securities and Exchange Commission (SEC) has filed a complaint in a federal court in NY alleging that Rio, Albanese, and former finance director Guy Elliott, deliberately inflated the value of the assets.

Rio Tinto (LON:RIO) and two of its former chief executives have been charged with fraud in the U.S.

Rio Tinto has said it will "vigorously defend itself against these allegations".

The SEC said misleading statements were made days before a series of debt offerings. After a second reduction, Rio Tinto sold the Mozambique subsidiary for $50 million, billions of dollars below the acquisition price.

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Based on the complaint's allegations, Rio Tinto plc, Rio Tinto Limited, Albanese, and Elliott are charged with violating the antifraud, reporting, books and records and internal controls provisions of the federal securities laws.

The SEC said they had inflated the value of coal assets in Mozambique and concealed critical information from Rio's board of directors, audit committee, independent auditors and the market. 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, ' said Steven Peikin, co-director of the SEC's enforcement division. He resigned as CEO of another mining giant, Vedanta Resources, in August.

Rio Tinto said that the SEC case was "unwarranted" and argued that once "all the facts are considered" by the court or a jury its claims will be "rejected".

The lawsuit accuses the Australian-British multinational corporation and former company executives of 12 counts of federal securities violations. Shell Chairman Charles Holiday said that the company hoped the proceedings would be resolved "satisfactorily" and, if done so, Elliott would be "considered for rejoining the board". Finally, Zacks Investment Research upgraded Rio Tinto PLC from a "hold" rating to a "strong-buy" rating and set a $56.00 price target for the company in a research note on Saturday, October 7th.

Rio Tinto also announced today that it had reached a settlement with the UK's Financial Conduct Authority (FCA) in respect of the timing of the impairment of RTCM in which it has agreed to pay $36.4m for breaching the FCA's disclosure and transparency rules.

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The impairment was later reflected in Rio Tinto's 2012 year-end accounts published in January 2013, which knocked 80% off the initial value of the investment.

'Rio Tinto and its top executives allegedly failed to come clean about an unsuccessful deal that was made under their watch.

"Reflecting the size of the company, this is the largest fine imposed to date by the FCA for a breach of rules relating to a firm's official listing and demonstrates how vitally important high standards of disclosure and transparency are to ensuring our markets function fairly and effectively". It added that the case was now closed.

As analysts monitor volatile markets in recent weeks they have updated their price targets on shares of Rio Tinto Plc (NYSE:RIO).

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