The well-known miner, Rio Tinto has been handed down a £27.4m fine in the UK after it was charged with fraud in the US over its handling of its coal assets.
Two of the former executives alongside FTSE 100 miner Rio have been charged in the US for allegedly inflating the value of the assets. The miner bought the assets at a price of $3.7bn (£2.8bn) in 2011, however, it decided to sell them a few years later at $50m.
Reports from the Securities and Exchange Commission claimed that Rio, its former chief executive Thomas Albanese and its former chief financial officer Guy Elliott "failed to follow accounting standards and company policies to accurately value and record its assets".
Complaints from SEC alleged that all three parties "concealed the adverse developments, and as a result, Rio Tinto released financial statements that were misleading days before a series of US debt offerings". The miner managed to raise $5.5bn from its investors even though it knew that the Mozambique coal subsidiary was worth negative $680m.
Steven Peikin, who is the co-director of the SEC’s enforcement division, revealed that the miner and its top executives allegedly failed to tell the truth about an unsuccessful deal that was made under their watch.
It turns out that the executives strived to save their own careers at the expense of investors. In response, Rio has said that it intends to defend itself against these allegations.
The charges are presented amidst the announcement by the UK Financial Conduct Authority which revealed that it was fining Rio for breaching disclosure rules in terms of the purchase.
The UK Financial Conduct Authority argues that the miner failed to carry out the impairment test and also failed to recognize the loss on the assets value as it was publishing the results for the year 2012.
The miner conducted financial modelling of the assets, but still decided not to carry out the impairment test as it is required by the international accounting standards.
Shockingly, Rio decided there was a "lack of clarity around how it would develop the mines" and decided it was "appropriate to continue to value the mining assets at the acquisition price".
The move was misled, and it showed lack of judgement, explaining why the FCA imposed a £27.4m penalty on the company.