SEC's ESG Task Force Brings 1st Case Against Brazilian Mining Co., Alleging Material Misstatements About Dam Safety

On April 28, 2022, the U.S. Securities and Exchange Commission (SEC) charged Vale S.A. (Vale), 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. The dam’s collapse killed 270 people and resulted in a loss of more than $4 billion in Vale’s market capitalization.

The SEC’s complaint, filed in U.S. District Court for the Eastern District of New York, charges Vale with violating antifraud and reporting provisions of the federal securities laws and seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties. The complaint alleges that, beginning in 2016, Vale “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” through Vale’s environmental, social, and governance (ESG) disclosures as well as its SEC regulatory filings.

Specifically, the SEC alleges that:

29. Vale’s public statements, including through SEC periodic filings on Forms 20-F and 6-K in 2017 and 2019, sustainability reports issued in 2017 and 2018, and a December 2018 ESG webinar, touted the stability declarations and reassured investors that its dams were stable and safe. In its 2017 Sustainability Report issued in 2018, for example, Vale affirmed that “100% of the audited structures were certified to be in stable condition” with stability declarations issued “by the responsible auditors,” and that all of their dams “are completely normal.”

30. Vale’s 2017 Sustainability Report further represented to investors that “[i]n addition to applying best practices pertaining to dam safety management, Vale submits its structures to audits conducted by specialized external consultants, and rigorously complies strictly with applicable legislation.”

… and further alleges specific misstatements or omissions in each year in the period 2016-2019.¹

This appears to be the first case brought by the SEC’s ESG Task Force, which was created in 2021. While, at its heart, this is a case about fraud, there is an environmental and social angle that the SEC highlights in its complaint. This case underscores the SEC’s attention to ESG disclosures, both in required public filings as well as in voluntary Corporate Sustainability Reports and similar ESG reports.

¹ For 2016, see Complaint ¶¶.222-226; for 2017, see Complaint ¶¶227-233; for 2018, see Complaint ¶¶234-249; and for 2019, see Complaint ¶¶250-253.