Securities and Exchange Commission v. Rio Tinto PLC

Background

The Securities and Exchange Commission sued Rio Tinto PLC, Rio Tinto Limited, Thomas Albanese, and Guy Robert Elliott under the Securities Act of 1933, the Securities Exchange Act of 1934, and related rules. The SEC alleged that the defendants fraudulently concealed a decline in the value of their coal business in Mozambique.

The defendants moved to dismiss the complaint. In the earlier order, the court granted that motion in part and denied it in part. The court dismissed most of the SEC’s allegations but allowed the SEC to proceed on a limited group of claims involving alleged false or misleading statements, the HY 2012 Report, accounting and audit-related provisions, and disgorgement.

The SEC later moved for reconsideration under Federal Rule of Civil Procedure 59(e) and Local Civil Rule 6.3. Reconsideration is an exceptional request asking a court to revisit an earlier ruling based on controlling law or facts that the court overlooked, an intervening change in law, new evidence, clear error, or manifest injustice. It is not ordinarily a way to present new arguments that could have been made earlier.

Analysis

The SEC relied primarily on the Supreme Court’s decision in Lorenzo v. SEC. The SEC argued that Lorenzo meant additional statements and conduct could support scheme-liability claims under subsections (a) and (c) of Securities and Exchange Commission Rule 10b-5 and under Section 17(a)(1) of the Securities Act.

The court disagreed. It read Lorenzo as holding that people who disseminate false or misleading statements to potential investors with intent to defraud may be liable under those provisions, but not as holding that misstatements alone are enough to establish scheme liability. The court distinguished the SEC’s allegations because, according to the opinion, the SEC alleged that the defendants failed to prevent misleading statements from being disseminated by others, rather than alleging that the defendants disseminated the information themselves. The court therefore denied reconsideration of the scheme-liability claims.

The court also rejected the SEC’s argument that Lorenzo expanded liability under Section 17(a)(2) of the Securities Act. The earlier order had dismissed claims against Albanese and Elliott because they were not the people who made the false statements. The court concluded that Lorenzo did not change that analysis and denied reconsideration of those claims.

Regarding statements in Rio Tinto’s 2011 Annual Report, the SEC argued that a reasonable investor would have considered material the alleged difference between what Rio Tinto thought it bought and what it acquired in the $3.7 billion transaction. The SEC also challenged the court’s reliance on the Impairment Paper. The court declined to reconsider those issues because the SEC had not identified controlling law or facts that the court overlooked and instead advanced arguments it had not made during the original motion to dismiss.

Because the court did not change its rulings on primary liability, it did not reevaluate whether Albanese and Elliott aided and abetted violations. It denied reconsideration of the aiding-and-abetting claims as well.

Disposition

Judge Analisa Torres denied the SEC’s motion for reconsideration. The opinion’s conclusion states that the motion was denied, leaving the earlier order’s partial dismissal and its identification of the claims on which the SEC could proceed unchanged.