Greek magnate George Economou became a Performance Shipping shareholder solely so he could buy a legal claim against the owner, but that claim doesn’t hold water under the law.
That is the gist of legal papers filed by Performance lawyers in the New York Supreme Court as they ask a judge to kick out Economou’s lawsuit.
As TradeWinds reported on 30 October, Economou filed the lawsuit against directors and insiders of New York-listed Performance, claiming they breached their fiduciary duties to shareholders in dominating voting control of the company through a dual-class ownership structure.
Economou and his Sphinx Investment Corp — which has tendered to buy in all Performance shares — are asking the court to invalidate the vote that allowed the shares exchange from December 2021 into 2022.
But the response from Performance — one of the three public shipowners controlled by the family of Greek patriarch Simeon Palios — makes repeated note that Economou did not own a single company share until well after the stock machinations had been completed.
“The complaint does not allege that Sphinx was a shareholder of Performance at the time of the alleged wrongdoing, and thus, Sphinx was owed no fiduciary duties during the relevant time period,” according to a filing by Israel David, counsel for the Performance defendants.
“Sphinx did not become a shareholder of Performance until long after the events Sphinx purports to challenge.
“Sphinx first purchased Performance stock on 7 August 2023, 18 months after the offer was consummated, and 17 months after the former directors left Performance’s board.
“In short, this lawsuit is the very reason Sphinx purchased Performance stock in the first place.”
Sphinx at last reporting held slightly over 1m Performance shares, or 8.5% of the company.
On 12 October, the Greek magnate tendered for all Performance shares at $3, at a time when the stock was trading around $1.68 on New York’s Nasdaq exchange. That tender has essentially remained frozen until the court sorts out Economou’s demands and the Performance move to dismiss them.
The family of founder Palios — who also founded New York-listed Diana Shipping and OceanPal — controls about 90% of Performance’s voting power, according to Economou’s complaint.
Insiders amassed the dominant block partly through a December 2021 initiative under which they converted common shares into non-voting Series B preferred shares, which then transitioned to super-voting Series C shares.
Each of the Series C units has the voting control of 10 common shares.
Performance chairwoman Aliki Paliou, daughter of Palios, controls about 85% of voting shares through her Mango Shipping, an entity founded by her father, the lawsuit alleges.
Andreas Michalopoulos, Paliou’s husband and Performance’s chief executive, controls about 3.6% of votes through his Mitzela Corp, the complaint states.
SEC prompted changes
But the Performance defendants assert in their motion for dismissal that there was nothing wrong with the shares exchange in any case, as the same terms offered to family members were available to all common shareholders.
Economou has argued that the terms were noxious to anyone but the insiders, including language that would freeze the sale of the shares for a year. But the Performance response asserts that this language was added to acknowledge issues raised by the US Securities & Exchange Commission in a staff review.
The Performance defendants also argue that the case does not belong in a New York court to begin with, since the only connections in a dispute between two Greece-based companies — Performance and Sphinx — are tenuous.
“In short, the claims in this case have nothing to do with the United States, much less New York or this Court,” the filing states.
“This case belongs in the Marshall Islands, if anywhere. Sphinx and the three corporate defendants are all incorporated under Marshall Islands law and subject to personal jurisdiction there.”
Economou’s legal team has not yet responded to the Performance motion.
