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SEC Sues Vale for False Claims Tied to Fatal Dam Collapse (2)

April 28, 2022, 6:03 PM

U.S. securities regulators sued Vale SA, one of the world’s largest iron ore miners, for allegedly making false claims about safety before the January 2019 collapse of its Brumadinho dam that killed 270 people.

Rio de Janeiro-based Vale misled local governments, communities, and investors through its environmental, social, and governance disclosures, starting in 2016, according to the the U.S. Securities and Exchange Commission. Vale, which trades on the New York Stock Exchange and in Sao Paulo, falsely told investors that the company adhered to the “strictest international practices” despite knowing that the Brumadinho dam didn’t meet international standards, the regulator said in a statement.

“While allegedly concealing the environmental and economic risks posed by its dam, Vale misled investors and raised more than $1 billion in our debt markets while its securities actively traded on the NYSE,” said Melissa Hodgman, associate director of the SEC’s enforcement division.

The SEC’s complaint, filed in federal court in Brooklyn, is seeking civil penalties, ill-gotten gains plus interest. According to the regulator, in addition to “immeasurable environmental and social harm” caused by the collapse, the incident helped shrink Vale’s market capitalization by $4 billion.

“We strongly disagree and will contest SEC allegations,” Vale Chief Financial Officer Gustavo Pimenta said on a conference call with investors. The firm’s Brazil-traded stock rose 2.3% at 1:46 p.m. New York time after the company on late Wednesday unveiled its biggest-ever share buyback program.

Read more: Mine Disasters of the Past Continue to Weigh on Vale’s Results

During President Joe Biden’s administration, the SEC has been increasingly focused on ESG disclosures and formed a task force in its enforcement division last year to focus on the issue.

In its complaint, the SEC said that the Brumadinho dam collapse was one of the worst mining disasters in history, burying more than 150 people alive. The collapse released nearly 12 million cubic tons of mining waste, or “tailings” – a toxic sludge of iron, manganese, aluminum, copper, and other rare earth minerals, the regulator said.

The regulator added that Vale intentionally concealed signs of the dam’s instability from the investors and Brazilian authorities. Over a period of more than two years, Vale obtained eight fraudulent stability declarations tied to corrupted audits of the Brumadinho dam, from February 2016 through October 2018, according to the SEC. To obtain the declarations, Vale used flawed data to perform safety analysis, strong-armed independent auditors, and ignored international standards that it claimed to follow, the SEC said.

Vale has spent billions in compensation and safety improvements, with the disasters costing it the title of world’s top iron-ore supplier and upending its efforts to reduce a trading discount with rivals BHP Group and Rio Tinto Group. Even years after the Brumadinho collapse, reparations have continued to take the shine off its financial results.

The company said in a recent filing that the Wall Street watchdog and Brazilian securities regulators had both been investigating the firm’s disclosures. “At this time, it is not yet possible to estimate the value or a range of potential loss to the company,” Vale said in its April 14 filing.

(Updates with Vale comment in fifth paragraph.)

--With assistance from Mariana Durao.

To contact the reporter on this story:
Matt Robinson in New York at mrobinson55@bloomberg.net

To contact the editor responsible for this story:
Ben Bain at bbain2@bloomberg.net

© 2022 Bloomberg L.P. All rights reserved. Used with permission.

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