Top Ships has asked a New York federal court to throw out a shareholder lawsuit claiming securities fraud in its dealings with Kalani Investments, calling the charges “a hodgepodge of theories” that fail to show wrongdoing.
In a motion to dismiss the action, the Evangelos Pistiolis-led company is closely tracking defences raised by two other shipowners sued in similar complaints for raising millions of dollars through Kalani — DryShips and Diana Containerships.
All claim there were no fraudulent schemes as alleged, just attempts by struggling shipowners to raise capital through a willing financier — and all fully disclosed to shareholders beforehand in filings with the US Securities and Exchange Commission (SEC).
All three actions appearing before separate judges in New York have now reached the point where federal judges will need to decide whether there is reason to dismiss or allow the litigation to move forward.
In the Top Ships case, attorneys at law firm Wilmer Cutler Pickering Hale and Dorr have made a comprehensive rejection of the shareholder claims on behalf of the New York-listed owner.
“Plaintiffs do not raise a strong inference that defendants caused the company to issue shares and engage in reverse stock splits for the purpose of manipulating the price of the company’s stock," they argue in the dismissal motion.
“The far more compelling inference is that the company issued securities to expand its fleet and fund its operations, and that it engaged in reverse stock splits for the reasons that it stated in its SEC filings — namely, to ‘help maintain compliance with the minimum bid price per share … requirement for listing its common shares on the Nasdaq Capital Market and to raise the share price” to a level viewed more favourably by investors.
The complaining shareholders have previously alleged that between November 2016 and April 2018 the shipowner expanded from 5.7 million to the equivalent of 3.06 trillion common shares, destroyed 99.9995% of shareholder value, pocketed $90m in the process and grew its fleet with purchases from Pistiolis’ private interests.
The defendants engaged in a scheme called “death-spiral financing”, the plaintiffs allege, describing a process in which they say Kalani, and later a second firm called Crede Capital Group, purchased newly issued common shares at a discount and then quickly resold them in the market, causing heavy dilution and tanking the share price.
Top Ships was able to keep the scheme alive through a series of reverse stock splits that propped up the share price, plaintiffs charge.
In answer to those charges, Top Ships' lawyers emphasise the owner’s public disclosure of everything it did with Kalani and Crede Capital.
“These disclosures included a full and accurate recitation of each transaction’s terms, and are, therefore, fatal to plaintiffs’ misrepresentation and market manipulation claims because ‘the market is not misled when a transaction’s terms are fully disclosed’,” citing a legal precedent.
Kalani Investments, registered in the British Virgin Islands and controlled by Toronto hedge fund executive Marc Bistricer, also has denied any wrongdoing.
The Top Ships litigation has been transferred from Judge Joseph F Bianco to Judge Brian M Cogan, but remains in the Eastern District of US District Court on Long Island, New York.
