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Jim Armitage: Whether chalk or coal, Rio Tinto has dug itself into a hole

The top two former executives of FTSE 100 mining group Rio Tinto are being sued for fraud by a Wall Street watchdog: Reuters
The top two former executives of FTSE 100 mining group Rio Tinto are being sued for fraud by a Wall Street watchdog: Reuters

Fraud, or mere incompetence? The differences between the allegations against Rio Tinto from the US and UK are as chalk to coal.

Both agree Rio’s failure to tell the market it massively overpaid for its Mozambique coal mine was disgraceful, yet we Brits go little further than blaming its accountants for a “serious lack of judgment” in not informing the audit committee.

But the SEC claims then-chief executive, Tom Albanese, and finance boss Guy Elliott staged a fraudulent cover-up, which they deny.

Has the FCA gone soft? We’ll find out in time. One thing is for sure; lawsuits from shareholders are on the way.

Fresh bid to escape

A fund manager once told me when companies did big takeovers, he always sold the shares.

Big deals are a clear indication, he said, that the boss’s ego has got out of control or that the company wants to cover up underlying problems, or both.

From Vodafone/Mannesmann to AOL/Time Warner via Hewlett-Packard/Autonomy, it’s a theory which has proved right more often than not.

This year, Reckitt decided to buy nappy-maker Mead for $18 billion (£13.7 billion) in a total U-turn on its previous strategy. A few months later, and its absurdly well-paid chief Rakesh Kapoor has admitted core sales at Reckitt are down, full-year forecasts won’t be met, and Mead’s Asian growth is just 4% compared, as Investec points out, with Danone’s 50%.

My fund manager friend is long retired. His advice, though, is evergreen.