After a veering wild ride that saw its value soar and sink but kept him rich the strange saga of Greek carrier DryShips owner George Economou has gotten even more bizarre with a suit charging his company and a Toronto businessman conspired to sell stocks that made them rich but left unwitting investors with worthless holdings.
It involved the Greek company selling huge amounts of discounted shares to the British Virgin Islands-registered company owed by Marc Bistricer, which resold them quickly, propping up DryShips value with so-called “reverse splits,” the Wall Street Journal reported in an analysis of the weird scheme.
Earlier this year the paper reported that Economou, who lives in Athens but whose company is based in the Marshall Islands, typical of Greek shippers who don’t want to pay taxes in their crisis-crunched homeland, made untold millions of dollars when its stock was buffeted.
The wild ride was charted by the Wall Street Journal in a report which said there was no apparent wrongdoing or fixing, but that a series of fortuitous events made him rich while after the company’s value initially soared 1500 percent right after the Nov. 2016 Presidential elections, its shares quickly plummeted 99.9 percent.
It was a convoluted story of how Economou, who owns only 0.01 percent of DryShips, made himself even richer through a series of tricky maneuvers before the company’s shares were briefly suspended by Nasdaq.
Now it’s even harder to figure out because of secrecy laws and murky trading patterns that a suit filed in the Marshall Islands by a man named Michael Sammons essentially charged with a criminal switch-lane chicane shell game to enrich Dryships and Kalani.
The civil suit filed July 3 seeks to stop the two companies from scheming to sell and resell discounted shares and halt the reverse splits that saw investors left with far fewer shares than they bought, effectively draining them of their money so that Dryships and Kalani could siphon it.
The suit accused Economou of unjustly enriching himself by having DryShips issue millions of new shares at a “devastating loss” to existing shareholders, according to the WSJ reported.
“The mechanism,” the suit said, was that DryShips sold discounted shares ”to co-conspirator Kalani Investments, a shell corporation run by Mark Bistricer … which would then dump them on the market regardless of price.” The paper couldn’t get comments ouf of either man.
The Journal jumped into the story after discovering DryShips stock fell 99.9 percent in six months after a few days when it skyrocketed 1500 percent but said it could find no evidence of any wrongdoing nor any investigation by the Securities and Exchange Corporation even though DryShips assets doubled while its shares almost evaporated in worth, along with nearly $500 million in traders money while Economou and Bistricer profited handsomely.
The 1.68 million shares of DryShips that existed early last year equal one share today.
That the company had just disclosed a huge loss and suspended debt payments “to preserve cash liquidity” evidently didn’t matter to buyers who wanted in while the stock was on fire, the Journal said, adding that vast numbers of new shares were created as a kind of mirage offering which DryShips sold at a big discount to Kalani, which unloaded them on investors who got burned and took huge losses but kept buying.
After its November plunge, DryShips has kept printing huge numbers of new shares it sells to Kalani and then, to slow the downward pressure on its new shares the Greek company issued a reverse-split, a technique in which companies with almost no value in share prices drives them higher by making each share represent a larger piece of the company.
On Nov. 1, 2016 for example, DryShips did a 1-for-15 reverse split. A holder of 15 shares now had just one, but that one share would have a higher price—roughly 15 times the price of one before the split.
The paper said Bistricer’s company approached DryShips with the maneuver to make them both rich at the cost of investors.
Kalani’s idea was that it would buy newly issued shares directly from the shipping companies at a discount to the stock-market price, thus injecting cash into the companies. Executives of three Greek shipping companies described such an approach by Kalani. All three said Kalani was controlled by Bistricer, the paper said.
Among the three executives approached was Anthony Kandylidis, DryShips’ Chief Financial Officer – and Economou’s nephew. Kandylidis said he met with Bistricer more than a year ago about the offer to help DryShips raise capital.
Despite the stock dilution, Economou had a provision to limit Kalani’s interest in DryShips and converted some loans to the company into a new class of preferred shares that carried 100,000 votes apiece. Through other companies he controls, he stood to benefit from the share deluge, the WSJ said.
Ingmar Bueb, a 48-year-old opera singer, invested $220,000 in DryShips over the years, the bulk of his nest egg. The High Bridge, N.J., resident had hoped to use the profits from this long-term holding to build a small opera house, he said.
Already nursing losses by early November of last year, Mr. Bueb noticed the sudden price surge. “I went to the cafe to sell it, but then it was halted and crashed,” he said.
He didn’t look again until he was doing his taxes this year and was shocked to discover that, because of the many reverse stock splits, he then owned only two shares. The investment now is worth less than $1. “I would rather have given that money to poor, hungry people,” Mr. Bueb said.
Kalani appears to have earned tens of millions by immediately selling the stock, which it purchased at a discount to the stock-market price.
James Angel, a financial-markets expert at Georgetown University, told the paper that the deal sounds like a “pseudo-underwriting” even though Kalani isn’t registered with the SEC to carry out that role.
Investors who bought DryShips shares last fall and held on have lost almost all of their money. A $10,000 investment in DryShips stock at the beginning of November was worth $167,000 two weeks later, during the brief price spike, but only about $2 today.
For DryShips, however, the cash that poured in from Kalani for new shares put the shipper on a strong financial footing. Its net assets have soared. It has used the money from Kalani to roughly double the size of its fleet to about 36.