Rio Tinto’s new chief executive Tom Albanese at the Park Hyatt hotel in Sydney, 25 July 2007.SMH Picture by PETER MORRISAn American law firm based in Seattle has filed a class action lawsuit against Rio Tinto over the mining giant’s failed investment in a Mozambique coal project which cost the mining giant billions of dollars.
The law firm Hagens Berman, which revealed the action on Monday, alleges defendants in the action made false and misleading statements and/or failed to disclose adverse information about the true value of Rio’s Mozambique coal investment made in 2011.
Rio acquired the coal assets for $US3.7 billion but the company’s plans for coal mining in the African country hit major hurdles, the assets crumbled in value, and the miner sold them in October 2014 for just $US50 million.
Also named as defendants in the lawsuit are Rio Tinto’s former chief executive Tom Albanese and former chief financial officer Guy Elliott.
Hagens Berman, which describes itself as “a national investor-rights law firm”, has taken the action on behalf of purchasers of Rio Tinto plc American Depositary Receipts between October 23, 2012 and February 15, 2013.
The writ alleges: “Defendants’ wrongful conduct has inflicted significant damages on Rio Tinto investors.” The plaintiff is named as Anton Colbert.
“This action concerns a fraud previously unknown to investors and only recently revealed by the SEC (Securities and Exchange Commission) in its complaint filed on October 17, 2017,” the writ says.
The class action lawsuit was filed in the US District Court for the Southern District of New York, and comes just days after the United States Securities and Exchange Commission revealed it had charged Rio Tinto and Mr Albanese and Mr Elliott with fraud.
In a statement, the law firm said the complaint alleges that defendants “made false and misleading statements and/or failed to disclose adverse information regarding RTCM’s (Rio Tinto Coal Mozambique’s) true value,” during the period October 23, 2012 and February 15, 2013.
The writ, which echoes the SEC’s allegations, says: “Within months of the acquisition, Albanese and Elliott knew of material problems adversely affecting this asset’s (“RTCM”) multi-billion dollar publicly reported valuation. By early 2012, Albanese and Elliott knew of additional problems with RTCM requiring an impairment analysis and material reduction of its publicly reported value. Instead, Albanese and Elliott thwarted the required impairment analysis required by the relevant accounting rules and throughout the Class Period continued to promote RTCM’s worth to investors.”
The writ alleges Rio’s 2011 annual report “contained statements about RTCM that were materially misleading, and collectively depicted RTCM in a positive light that was not supported by the best information then known to Defendants and did not disclosure adverse developments at RTCM or the related valuation challenges. To the contrary, defendants falsely declared in Rio Tinto’s financial statements that the value of RTCM was the amount it paid to acquire Riversdale, i.e., approximately $US3.7 billion dollars.”
It also says: “Albanese and Elliott signed the 2011 Annual Report and were therefore responsible for the materially false and misleading statements and/or omissions.”
Rio would not comment on the class action lawsuit on Tuesday, but it is understood the miner is not surprised by the move and is confident the case has no merit.
Last week, in response to the SEC announcement, Rio and the two former executives all vowed to fight the charges.
Mr Albanese said: “There is no truth in any of these charges. I echo Rio Tinto’s confidence that these will be proved baseless in court.”
A spokesperson for Mr Elliott said: “Guy also fully refutes these charges and will be vigorously contesting them.”
Rio said it believed the SEC’s case was “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”.
It also said: “Rio Tinto intends to vigorously defend itself against these allegations.”
Rio said the timing of the impairment of Rio Tinto Coal Mozambique had been reflected in its 2012 end-of-year accounts.