Securities fraud allegations against two Greek shipowners remain alive in US federal courts, at least for now, after a judge declined to end the shareholder litigation outright.
District Judge Gary R Brown has decided to allow shareholders of George Economou’s DryShips and Simeon Palios vehicle Diana Containerships to amend their respective complaints over the two companies’ dealings with financier Kalani Investments.
Lawyers for the two shipowners had asked Brown to end the litigation, following the example of US courts that had kicked out a similar complaint against a third Greek owner, Top Ships, over its dealings with Kalani.
Top Ships had been cleared of the fraud allegations by District Judge Brian Cogan in New York and the Second Circuit Court of Appeals, which unanimously upheld the trial court’s dismissal.
In both rulings, judges found that Top Ships disclosed all share transactions in question, therefore leaving no scope for manipulation.
The attorneys for DryShips and Diana Containerships, now known as Performance Shipping, argued that the cases were essentially identical to the Top Ships litigation and warranted like treatment without further proceedings.
Instead, two sets of plaintiffs get “a third bite at the apple”, as a lawyer for Diana Containerships put it in court filings.
All three lawsuits focused on the financing of the Greek owners by Kalani, a firm based in the British Virgin Islands and controlled by Toronto-based Marc Bistricer and his hedge fund, Murchison Ltd.
Proceeds received from share sales by the three companies ranged from the $700m taken in by DryShips to just $141,000 by Diana Containerships. Top Ships had received about $90m, according to court filings.
Plaintiffs argued that the owners and financiers had engaged in a scheme to destroy equity value for common shareholders while enriching themselves and Kalani. They used reverse share splits to keep the firms listed and shares tradable, according to the allegations.
Like Top Ships, DryShips and Diana Containerships asserted that they had disclosed all actions to investors publicly ahead of any trading.
Economou has since taken DryShips private.
Top Ships closed trading on Tuesday on New York’s Nasdaq at $0.15 per share. It had a market capitalisation of $33m.
Performance Shipping closed trading on the Nasdaq at $0.69 per share. It had a market capitalisation of $35m.
