OSC slaps Katanga Mining, CEO, and former board members with $34.4M in penalties

The Ontario Securities Commission has fined Katanga Mining (TSX: KAT) along with former members of its board of directors, including Aristotelis Mistakidis, Glencore‘s (LON: GLEN)’s head of copper trading, for disclosure violations and internal control failures that led to the company making misleading financial disclosure to investors.

In a settlement with the Ontario Securities Commission today, Katanga Mining, a Glencore subsidiary, has admitted that between January 2012 and January 2017, it failed to maintain adequate internal controls over financial reporting and disclosure controls and procedures.

In addition, former members of its board of directors, Mistakidis, Tim Henderson, and Liam Gallagher, along with former chief financial officers Jacques Lubbe and Matthew Colwill, former director and CEO Jeffrey Best, and current director and CEO Johnny Blizzard, admitted that they engaged in conduct that undermined Katanga’s corporate governance and internal controls and culture of compliance that resulted in Katanga overstating US$41.8 million of copper cathode production in the Democratic Republic of Congo. The individuals also admitted that their actions resulted in improperly capitalizing impaired ore and overstating concentrate inventories totaling about US$122 million.

“Gallagher, Henderson and Mistakidis served as Glencore’s nominee directors on Katanga’s board of directors and exercised significant influence over operational and financial decisions at Katanga,” OSC states in its Dec. 18 news release. “Together with Katanga’s officers, they admit to conduct that undermined Katanga’s internal controls, resulting in Katanga failing to comply with Ontario securities laws.”

Separately, Katanga agreed (not its directors and officers) that it failed to disclose material risks to its business, the OSC said, specifically the elevated risk of public sector corruption in the DRC and the nature and extent of Katanga’s reliance on individuals and entities associated with Dan Gertler. “Gertler’s close relationship with Joseph Kabila, the president of the DRC, and allegations of Gertler’s possible involvement in corrupt activities in the DRC were referred to in media and non-governmental reports,” the OSC states.

As part of its settlement, Katanga Mining has agreed to make a voluntary payment of $28.5 million to advance the OSC’s mandate of protecting investors and has agreed to pay $1.5 million toward the costs of OSC’s investigation.

Glencore’s head of media declined to comment on the settlement, pointing instead to its press release, in which the company stated that it is “disappointed by the conduct that has led to today’s settlement,” and that it “has taken appropriate remedial actions in response to this conduct.”

The commodities trading giant announced earlier this month that Mistakidis will retire as head of copper marketing at the end of 2018.

Under the OSC settlement, Mistakidis has agreed to pay a penalty of $2.45 million; Gallagher, $950,000; Best, $750,000; Lubbe, $550,000; Henderson, $450,000; Blizzard, $400,000; and Colwill, $350,000. Each of them has also agreed to pay $50,000 in costs.

In addition, Mistakidis, Lubbe and Best have been banned from being an officer or director in Canada for four years. Gallagher, because of his role on Katanga’s audit committee, has been banned from being an officer or director for six years; Henderson for three years; Colwill and Blizzard, two years.

Blizzard must also step down as Katanga’s CEO within thirty days.