SEC Allowed to Pursue Fraud Claims Against Rio Tinto, Former Executives
A federal judge in Manhattan has allowed the U.S. Securities and Exchange Commission to proceed with a lawsuit accusing the multinational mining firm Rio Tinto and two former executives of fraud in connection with its failed investment in a Mozambique coal project.
March 18, 2019 at 04:55 PM
4 minute read
A federal judge in Manhattan has allowed the U.S. Securities and Exchange Commission to proceed with a lawsuit accusing the multinational mining firm Rio Tinto and two former executives of fraud in connection with its failed investment in a Mozambique coal project.
U.S. District Judge Analisa Torres of the Southern District of New York on Monday denied Rio Tinto's motion to dismiss the enforcement action, finding that the SEC had supported some claims that the company, its former Chief Executive Thomas Albanese and former Chief Financial Officer Guy Robert Elliott had misled the firm's directors and investors about the prospects for the $3.7 billion venture, starting in May 2012.
In its October 2017 complaint, the SEC said that the Rio Tinto, Albanese and Elliott hid a range of setbacks at the mine, which it purchased through a takeover of the former Riversdale Mining company in 2011. According to the SEC, the defendants had overvalued the firm's mining assets, despite an internal assessment that valued them at negative $680 million, and allowed Rio Tinto to raise $5.5 billion from U.S. investors.
“Privately, defendants knew [the assets] had little or no commercial value. Nevertheless, defendants undermined the impairment process required under International Accounting Standards and Rio Tinto's accounting policies,” attorneys from the SEC wrote in the complaint.
The company ultimately took a $3 billion writedown for the Mozambique project and sold the assets for just $50 million in 2014, according to court documents.
The defendants moved to dismiss the case last year, arguing that the SEC had failed to establish a case for fraud. According to motion, optimistic company statements cited by the regulators amounted to “inactionable puffery,” and investors had no reason to believe that any risks omitted from public statements and filings did not actually exist.
On Monday, however, Torres ruled that the SEC had “plausibly alleged” falsity in Rio Tinto's semi-annual financials in 2012, after the defendants had learned about the project's negative valuation. Statements about the “number” and “breadth” of the company's options for transporting coal in Mozambique, as well as the extent of the writedown Rio Tinto had anticipated were also suspect, she said.
Though Torres found no evidence that they had intended to overvalue Rio Tinto Coal Mozambique in the 2012 half-year filing, Albanese and Elliott will still face claims that their conduct led to the miscue.
“Albanese was aware that the best information indicated that RTCM had no value and no realistic options for transportation of coal, but he continued to tout it as being 'prospective' and a 'long-term opportunity with the potential to grow beyond 25 million tons of coal per year,'” Torres said in her 50-page ruling. “Through these statements, Albanese was 'misrepresenting material facts' to investors.”
An attorney for Rio Tinto declined to comment Monday afternoon, saying he had not yet received permission from his client to discuss the case publicly. Attorneys for Albanese and Elliott were not immediately available to comment.
A spokesman for the SEC declined to comment on Monday.
SEC attorneys Dean Michael Conway, Gregory Nelson Miller, Martin Totaro, Thomas A Bednar and David Mark Cave are representing the agency in the case.
Rio Tinto is represented by Lawrence Jay Zweifach, Avi Weitzman, Jennifer Laurie Conn, Mark Adam Kirsch and Michael Springer of Gibson, Dunn & Crutcher in New York and Alexander W. Mooney, Aric Hugo Wu and Kellam Conover from the firm's office in Washington, D.C.
Albanese is represented by Peter J. Romatowski, Melissa Lim Patterson and Kristen Allyssa Lejnieks of Jones Day in Washington, D.C.; David Ronald Woodcock and Tyson Mark Lies in Dallas and Jacqueline Vallette and Norman Scott Fletcher in Houston.
Elliott is represented by Theodore Von Wells Jr., Geoffrey Rogers Chepiga, Livia Fine and Walter G. Ricciardi of Paul, Weiss, Rifkind, Wharton & Garrison in New York.
The case is captioned SEC v. Rio Tinto.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllLukoil Pan Americas Sues Investment Firm Over Alleged $18 Million Breach
New York Court of Appeals Weighs How to Assess Exposure to Asbestos in Talc Lawsuit
Foley & Lardner Sign on to Represent Defendants in Cryptocurrency Case
Trending Stories
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250