Rio Tinto and ASIC reach a $750,000 agreement on market deception claims
ASIC has walked away from its claims Rio Tinto misled the market during the company’s disastrous $5.15bn foray into Mozambique.
The nation’s corporate watchdog has dropped all but one claim in its long-running pursuit of Rio Tinto, having accused the company of misleading the market over its $US3.7bn ($5.1bn) Mozambique coal debacle.
On Monday, the Australian Securities & Investments Commission also dropped claims against two former Rio executives, having earlier alleged ex-CEO Tom Albanese and chief financial officer Guy Elliott breached their duties as directors.
ASIC also walked away from its previous pursuit of Rio for allegedly engaging in “misleading or deceptive conduct” in its 2011 annual report, delivered to the market in early 2012, in an effort to conceal emerging problems with its newly acquired metallurgical coal project in Mozambique.
Instead ASIC and Rio agreed to a $750,000 civil penalty for failing to comply with continuous disclosure laws in the lead-up to a massive writedown of the asset in early 2013.
Federal Court judge David Yates reserved his decision on the court’s approval of the settlement on Monday morning.
ASIC launched legal action against Rio in 2018, along with Mr Albanese and Mr Elliott, over alleged misleading and deceptive conduct in the accounting treatment of the Mozambique metallurgical coal assets a decade ago.
The Mozambique metallurgical coal assets were acquired from Riversdale Mining for $US3.7bn in 2011, but the project quickly unravelled and Rio booked a $US2.9bn impairment against the assets in February 2013.
ASIC had alleged that Rio misrepresented the reserves and resources of the Mozambique assets in its 2011 annual report, which was ultimately signed off by both Mr Albanese and Mr Elliott. But the agreed settlement, presented to the Federal Court on Monday, said Rio’s conduct was “not deliberate or reckless, or negligent”, but instead the result of a failure of Rio’s internal processes to prevent the contravention.
Mr Albanese quit Rio on January 17, 2013, when Rio first flagged a massive $US14bn writedown of assets in its upcoming annual results – including the almost total impairment in Mozambique, as well as a $US10bn-$US11bn writedown resulting from its ill-fated $US38bn acquisition of Alcan.
Mr Elliot had signalled his intention to leave Rio Tinto in July 2012, and formally left the company in April 2013.
A seven-week trial was scheduled to begin on Monday over the claims, but ASIC elected not to go to trial on its original claims.
Lawyers for the corporate watchdog told the Federal Court on Monday that the agreed $750,000 penalty was still one of the highest penalties ever levied for a single breach of a listed company’s continuous disclosure laws, for which the maximum penalty could be up to $1m.
ASIC’s withdrawal is in stark contrast to the UK’s Financial Conduct Authority, which also investigated the Mozambique issue and eventually levied a £27m penalty against the mining giant, after finding Rio should have impaired the Mozambique assets six months before the writedown.
Separate cases brought against Mr Albanese and Mr Elliot by the US Securities and Exchange Commission are also still continuing – but US authorities have also reduced the scope of their claims, dropping allegations that the executives engaged in “fraud” and misled the market.
“At today’s hearing in the Federal Court, Rio Tinto and ASIC made submissions regarding a penalty for a single contravention of Rio Tinto’s continuous disclosure obligations in the period 21 December 2012 to 17 January 2013, immediately preceding the impairment announcement,” a Rio spokesman said.
“The settlement remains subject to the Court’s approval.”
Rio Tinto shares closed up $3.63 to $118.17 on Monday.
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