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.