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MINING giant Rio Tinto (ASX: RIO) and two former executives have been charged with fraud in the United States for allegedly trying to cover up multi-billion dollar losses on a failed African investment.
Former CEO Tom Albanese (pictured) and former CFO Guy Elliott, along with the company itself, were charged by the powerful US Securities and Exchange Commission (SEC) for allegedly failing to follow accounting standards and hiding or delaying disclosure of mounting losses from the operation.
Rio Tinto bought a Mozambique coal asset through the acquisition of ASX-listed Riversdale in 2011 for US$3.7 billion and was forced to write off more than US$3 billion from the value of its investment in 2013.
The SEC says that Rio Tinto, by making misleading statements to the public, was able to raise US$5.5 billion from US investors and continued to solicit investments after the company was made aware that the business was worth far less than originally thought.
"Instead, as the project began to suffer one setback after another resulting in the rapid decline of the value of the coal assets, they sought to hide or delay disclosure of the nature and extent of the adverse developments from Rio Tinto's board of directors, audit committee, independent auditors, and investors," says the SEC.
SEC enforcement co-director Steven Perkin says Albanese and Elliot sought to save their own careers rather than tell the truth to investors.
"Rio Tinto and its top executives allegedly failed to come clean about an unsuccessful deal that was made under their watch," says Perkin.
"They tried to save their own careers at the expense of investors by hiding the truth."
The SEC alleges the fraud continued into January 2013 when an executive in Rio Tinto's technology and innovation group uncovered the deception carried out by Albanese and Elliot.
Following an internal review, Rio Tinto announced Albanese's resignation and reduced the value of the coal assets by more than US$3 billion.
The ASX listed mining company says it will "vigorously defend" the charges aimed at Albanese and Elliot.
The SEC complaint details how Rio Tinto and former executives allegedly committed fraud by not accurately disclosing the value of the asset which became Rio Tinto Coal Mozambique (RTCM). It also alleges the company did not reveal the impairment when Rio Tinto published its 2011 end of year financial accounts. The SEC says the company, along with Albanese and Elliott, inflated the value of RCTM which was acquired for US$3.7 billion (AU$4.7 billion) and sold a few years later for US$50 million.
In a statement to the ASX, Rio Tinto says it completely rejects the SEC's claims.
"Rio Tinto believes that the SEC case is unwarranted and that, when all the facts are considered by the court, or if necessary by a jury, the SEC's claims will be rejected," says Rio Tinto.
The company recently reached a settlement in the United Kingdom with the UK's Financial Conduct Authority about the impairment of RTCM. The FCA determined that Rio Tinto breached the FCA rules and imposed a penalty on Rio Tinto of $36.4 million. The FCA made no findings of fraud in the investigation.
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