As described in this press release, the SEC has filed a complaint against Vale S.A., a publicly traded (NYSE) Brazilian mining company and one of the world’s largest iron ore producers, charging that it made “false and misleading claims about the safety of its dams prior to the January 2019 collapse of its Brumadinho dam. The collapse killed 270 people, caused immeasurable environmental and social harm, and led to a loss of more than $4 billion in Vale’s market capitalization.” The SEC alleged that Vale “fraudulently assured investors that the company adhered to the ‘strictest international practices’ in evaluating dam safety and that 100 percent of its dams were certified to be in stable condition.” Significantly, these statements were contained, not just in Vale’s SEC filings, but also, in large part, in its sustainability reports.  According to Gurbir Grewal, Director of Enforcement, “[m]any investors rely on ESG disclosures like those contained in Vale’s annual Sustainability Reports and other public filings to make informed investment decisions….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.” The SEC’s charges arising out of this horrific accident are a version of “event-driven” securities litigation—brought this time, not by shareholders, but by the SEC.

As the SEC alleged in the complaint, Vale “committed securities fraud by intentionally concealing the risks that one of its older and more dangerous dams, the Brumadinho dam, might collapse. Specifically, Vale (1) improperly obtained stability declarations for the dam by knowingly using unreliable laboratory data; (2) concealed material information from its dam safety auditors; (3) disregarded accepted best practices and minimum safety standards; (4) removed auditors and firms who threatened Vale’s ability to obtain dam stability declarations; and (5) made false and misleading statements to investors.”  At the same time, Vale’s stock was actively traded on the NYSE, and it raised $1 billion in the U.S. debt markets.

According to the SEC, the Brumadinho dam collapse in January 2019 was “one of the worst mining disasters in history,” releasing nearly 12 million cubic tons of toxic mining waste (called “tailings”) that killed 270 people (burying over 150 people alive) and poisoned the river.  The dam collapse created “immeasurable environmental, social, and economic devastation.” Following the collapse, the company’s market cap fell by over $4 billion, its NYSE-traded ADSs declined in value by over 25% and its corporate credit rating was downgraded to junk status. The SEC alleged that Vale “intentionally concealed alarming signs of the dam’s instability from the investing public and Brazilian authorities. Vale also deliberately manipulated multiple dam safety audits; obtained numerous fraudulent stability declarations; and regularly and intentionally misled local governments, communities, and investors about the dam’s integrity.”

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