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The SEC charged Vale S.A., a publicly traded Brazilian mining company and one of the world’s largest iron ore producers, with making false and misleading claims about the safety of its dams prior to the January 2019 collapse of its Brumadinho dam.

According to the SEC complaint, Vale:

  • improperly obtained stability declarations for the dam by knowingly using unreliable laboratory data;
  • concealed material information from its dam safety auditors;
  • disregarded accepted best practices and minimum safety standards;
  • removed auditors and firms who threatened Vale’s ability to obtain dam stability declarations; and
  • made false and misleading statements to investors.

The SEC complaint states Vale knowingly or recklessly suppressed the findings of its own retained experts. The Vale executives and employees who were responsible for monitoring the stability of Vale’s dams deceptively manipulated the processes that they supposedly safeguarded. Rather than confront the high reputational and economic costs arising from the unacceptable safety risks posed by its Brumadinho and other dams, Vale engaged in a pattern of deceptive acts designed to skirt the applicable regulatory requirements related to dam safety. Over a period of more than two years, from February 2016 through October 2018, Vale knowingly or recklessly obtained eight fraudulent and deceptive stability declarations in connection with corrupted audits of the Brumadinho dam.

At the time it obtained these stability declarations, the SEC alleges Vale knew they were based on unreliable and flawed laboratory data or a flagrant disregard for minimum standards of safety that Vale purported to follow. Vale knew that assessments of the Brumadinho dam, based on best engineering practices, had revealed that the dam did not even meet Vale’s own safety standards much less international standards for dam safety.

Vale obtained these fraudulent stability declarations through a pattern of deceptive acts. For example, Vale removed auditors when they refused to bend to Vale’s will and utilized “blackmail” to coerce other auditors to comply with Vale’s demands. Vale cut backroom deals with one of its auditors, which promised to issue stability declarations in exchange for lucrative contracts from Vale, so long as Vale agreed to undertake certain long-term corrective actions onthe dam – even though both Vale and the auditor knew that those corrective actions could not resolve the near-term safety risks posed by the Brumadinho dam.

According to the SEC, Vale’s deceit misled investors regarding several material issues: the stability of Vale’s dams; the nature of Vale’s safety practices in the wake of the Mariana dam disaster; and the actual risk of catastrophic financial consequences should any of its high-risk dams, like the Brumadinho dam, collapse.

Vale’s President and CEO perpetuated Vale’s false and misleading narrative when he falsely told investors at a meeting in Sao Paulo that Vale’s tailing dams are in a state of “impressive” quality. As reported in an April 10, 2018 article in Valor Econômico entitled, “The state of the dams today is ‘impeccable’, says Vale’s president,” the CEO stated, “As soon as I started as president, I thought about the state of the dams. If there was another accident like Mariana’s, my management would be short.” He continued, “I don’t know if this work was done after Mariana or if it was already like that, but today the dams are impeccable.”

The SEC’s allegations are from a recently filed complaint. No court has found the SEC’s allegations are true.