Traders Buy Large Volume of Rio Tinto PLC Put Options (RIO)

The Securities and Exchange Commission claims in a federal securities-fraud lawsuit that worldwide mining company Rio Tinto and former executives concealed billions of dollars lost in a bungled African coal-mine deal.

"Rio Tinto raised a total of $5.5 billion in US debt offerings that incorporated materially misleading statements and omissions concerning RTCM's valuation", the lawsuit alleges.

A spokeswoman for Elliott told CNNMoney that the former Rio Tinto chief financial officer "fully refutes" the allegations and "will be vigorously contesting them".

However, before the 2012 half year, it became apparent that Rio Tinto would not be able to use barges to transport the coal to the coast as planned and that an alternative solution - at a higher cost - would be needed to transport coal for export.

The Anglo-Australian giant bought its Mozambique assets for US$3.7 billion in 2011 and sold them for just US$50 million three years later, forced to write off $US3.0 billion from its value.

The SEC filing is seeking to achieve permanent injunctions, return of allegedly ill-gotten gains plus interest, civil penalties from all the defendants, and to bar Albanese and Elliott from serving as public company officers or directors.

According to the SEC's complaint, in 2011, Rio Tinto acquired coal assets in Mozambique shortly after disclosing huge losses associated with its previous large-scale acquisition of Alcan. They tried to save their own careers at the expense of investors by hiding the truth, ' said Steven Peikin, co-director of the SEC's enforcement division.

Albanese served as CEO between 2007 and 2013.

As a result of the charges, Mr Elliott stood down from his role as a non-executive director at oil group Royal Dutch Shell.

In a statement, Shell said: "We hope he satisfactorily resolves those proceedings and, that in that event, he would like to be considered for rejoining the Board".

Rio Tinto was separately fined £27.4m by the UK's financial watchdog for breaching disclosure and transparency rules over its handling of the Mozambique mining assets.

Instead, Rio Tinto decided there was a "lack of clarity" around how it would develop the mines so it would not be appropriate to revalue these assets.

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.

Rio Tinto recognised the impairment in January 2013 after an executive at the company's Technology & Innovation Group discovered the assets were being carried at an inflated rate. There were indicators of impairment for the Mozambique assets which meant that Rio Tinto was required to carry out an impairment test.

Despite internal financial modelling by Rio indicating this had destroyed the value of the acquisition, the company decided not to carry out an impairment test as it was meant to do under worldwide accounting standards.

Rio Tinto agreed to settle at an early stage of the FCA investigation, otherwise it would have been fined $51 million.

Mark Steward, FCA executive director of enforcement and market oversight, said: 'The UK listing regime requires listed companies to adhere to high standards of disclosure and transparency.

"The FCA made no findings of fraud, or of any systemic or widespread failure by Rio Tinto".

Shares in Rio Tinto are down 1.43 percent as of 11.31AM (GMT). "The case is now closed".



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