Operator: “Your next question is from David Cohen.”

Cohen: “Yes, what is the current plan to destroy stockholder value as you did with Imperial Petroleum?”

StealthGas CEO Harry Vafias: “Next question please.”

Cohen: “What is the plan? …” (Operator hangs up on Cohen.)

That was an exchange during the latest quarterly call of StealthGas (NASDAQ: GASS), whose spinoff Imperial Petroleum (NASDAQ: IMPP) is one of numerous Greek-owned shipping companies that raised millions via dilutive share offerings handled by New York investment bank Maxim Group.

It’s no solace to all the shipping shareholders who’ve already been burned — these offerings decimated share values — but resistance is building, and not just on conference call Q&As.

Ridgebury Tankers CFO Hew Crooks lashed out at Larry Glassberg, Maxim’s co-head of investment banking, on the stage at the Marine Money Week conference in June, alleging in front of a packed house: “What’s being done by your firm in shipping is damaging everybody.”

Activist shareholders are now in motion. Galloway Capital is targeting Imperial Petroleum. Greek shipping magnate George Economou is going after Performance Shipping (NASDAQ: PSHG) and OceanPal (NASDAQ: OP), two other companies that have done controversial stock offerings.

The Securities and Exchange Commission has initiated legal or administrative proceedings against two of the players that have been involved in dilutive shipping share sales, including Maxim Group on Friday.

SEC censures Maxim

The SEC imposed sanctions on Maxim, including an $800,000 civil penalty, a censure and a cease-and-desist on future violations. Maxim consented to the penalties without admitting or denying the SEC’s findings.

The SEC determined that Maxim violated securities laws on execution of short sales and submission of suspicious activity reports (SARs) from “at least January 2018 through January 2019.”

There’s no mention of shipping shares, or any specific stocks, in the SEC statements on Maxim. The SARs violations were related to over-the-counter (OTC) stocks, whereas shipping microcaps trade on Nasdaq. The SEC said Maxim failed to investigate suspicious activity that “may be indicative of … pumps and dumps and other manipulative activity.”

The short-sales violations were not specifically linked to OTC stocks. The SEC said Maxim was not “locating” shares prior to effecting short sales. When selling stocks short, investors have to borrow the shares they sell, and get a “locate” from their broker-dealer confirming they can borrow enough shares to short the stock.

In the offerings handled by Maxim, the shipping company issuers have generally sold shares and warrants to institutional-fund intermediaries, which then flipped the stocks to retail buyers.

Sabby Management was a major intermediary for shipping offerings handled by Maxim. It bought shares in offerings by Top Ships (NASDAQ: TOPS), Imperial Petroleum, Globus Maritime (NASDAQ: GLBS), Castor Maritime (NASDAQ: CTRM), OceanPal and Seanergy.

The SEC filed suit against hedge fund Sabby Management in June, alleging that Sabby engaged in “‘naked short selling’ in which it had not … borrowed or ‘located’ the shares.”

The SEC did not disclose the names of the stocks involved, and the date range covered by the Sabby suit (2017-2019) does not overlap with any of the dates of the dilutive shipping-share sales except for those done by Top Ships.

The case against Sabby is ongoing in New Jersey’s district court.

Economou … champion of shareholder rights?

On the shareholder activism front, Galloway Capital, which owns 2.3% of Imperial Petroleum, said in a publicly filed letter to Vafias that it was “baffled” by a “a very dilutive round of financing led by Maxim Group.”

Galloway said it had “spoken with a number of shareholders who are equally outraged” by the shipping company’s “hyper-dilutive financing.”

Meanwhile, Economou purchased 1,003,859 shares of Performance Shipping for $1.48 million in August, representing a 9.5% stake, and 324,530 shares of OceanPal for $563,092 in August and September, representing a 9.1% stake. Both Performance and OceanPal are spinoffs of Greek owner Diana Shipping (NYSE: DSX).

Economou filed public letters to Performance Shipping’s board in which he chastised the company for its dual-class capital structure that protected the sponsor from dilution of control amid capital raises. Economou proposed the appointment of a new board member, John Liveres, and called for the removal of four board members. He has yet to publicly post a letter to OceanPal’s board.

Performance Shipping responded that Economou’s letters are “riddled with baseless allegations, errors and mischaracterizations of events” and called his demand “preposterous.”

“Mr. Economou’s record of destroying shareholder value and enriching himself through self-dealing and poor corporate governance speaks for itself. We note that the nominee proposed, John Liveris, has aided Mr. Economou in some of his most egregious transactions,” said Performance Shipping.

Pot calling the kettle black

Indeed, Economou has a long and well-documented track record of controversy vis-à-vis corporate governance, related to his company DryShips, which was listed on NYSE between 2005 and 2019. He was sued by shareholders multiple times (and never lost). He infamously said in an interview with Fortune in 2008: “If you don’t like it, don’t invest.”

Economou controlled DryShips using a dual-class stock structure that protected him from dilution of control amid capital raises, as is the case with Performance Shipping. DryShips did hyper-dilutive share sales, as is the case with the shipping offerings amid the recent controversy.

In 2016-2017, DryShips used a Canadian company called Kalani Investments as an intermediary, with Kalani reselling to retail stock buyers. Top Ships also did offerings via Kalani. Shareholders sued — and lost — although entities involved with Kalani paid a settlement of $8.15 million to the SEC in 2021 without admitting guilt.

Dilutive equity sales by DryShips and Top Ships using Kalani as an intermediary were a precursor to the dilutive share sales in recent years by Top Ships, Performance Shipping, OceanPal, Imperial Petroleum, Castor, Globus and other Greek owners using Maxim as an investment banker and funds including Sabby as intermediaries.

On one hand, Economou’s emergence as a champion of shipping shareholder rights brings to mind the phrase “the pot calling the kettle black.” On the other, securities and litigation filings confirm that Economou knows this territory well. In “The Silence of the Lambs,” when FBI agent Clarice Starling needed to track down a serial killer, she got her best advice from Hannibal Lecter.

Click for more articles by Greg Miller 

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