The collapse of the Bumadinho Dam in Brazil in 2019 was a disaster. The structure was holding back iron ore waste before it collapsed, sending million of tons of toxic waste into the village of Córrego do Feijão. It killed 270 people. The dam was controlled by the Brazilian mining company: Vale S.A.
Clearly a massive disaster, but was it securities fraud?
The US Securities and Exchange Commission seems to think so. And the SEC is positioning the case an ESG disclosure violation.
The complaint accuses Vale of deliberately manipulating multiple dam safety audits; obtaining
numerous fraudulent stability declarations; and regularly and intentionally misleading local
governments, communities, and investors about the dam’s integrity. The SEC points to Vale’s public Sustainability Reports and other public filings that assured investors that Vale adhered to the “strictest international practices” in evaluating dam safety and that 100 percent of its dams were certified to be in stable condition.
“By allegedly manipulating those disclosures, Vale compounded the social and environmental harm caused by the Brumadinho dam’s tragic collapse and undermined investors’ ability to evaluate the risks posed by Vale’s securities.”
How is a Brazilian mining company subject to the jurisdiction of the SEC? Vale has American Depositary Shares and some debt notes registered with the SEC. That clearly moves it into SEC jurisdiction.
Why brings a securities fraud case? The complaint goes into great deal about the allegedly fraudulent acts that Vale took around the regulation and evaluation of the dam. The SEC takes the position that making public statements, especially at an investor presentation, that were false and misleading about the dam safety was misleading to investors.
The primary motivation is that the SEC’s new Climate and ESG Task Force in the Division of Enforcement is on duty.
The SEC launched the Climate and ESG Task Force within the Division of Enforcement to develop initiatives to proactively identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment.
Vale said its ESG was not too bad, at least not for a mining company. But in reality its ESG was very bad, even bad for a mining company. The SEC says that is securities fraud.
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