DryShips Subpoenaed by SEC

Nasdaq-listed shipowner DryShips has received a subpoena from the Securities and Exchange Commission (SEC) requesting documents and information regarding the company’s share offerings made between June 2016 and July 2017.

“The company is providing the requested information to the SEC,” DryShips said, announcing the results for the second quarter of 2017.

The transactions helped DryShips raise hundreds of millions of dollars by selling newly-issued shares, including those sold directly to Kalani Investments Ltd. (Kalani), a British Virgin Islands firm, at a discount to market value.

This influx of capital enabled DryShips to roughly double the size of its fleet to 36 vessels.

However, dealings with Kalani have triggered a class action suit, as investors claimed the transactions cost them hundreds of million dollars. The class action further claimed that transactions with Kalani were “an illegal capital-raising scheme”, due in part to Kalani’s failure to register as an underwriter with the U.S. Securities & Exchange Commission, and that as a result of the above, the company’s public statements were “materially false and misleading at all relevant times.”

As confirmed by DryShips, since November 2016, the company has raised approximately USD 688 million of equity that has been used to acquire 17 vessels with an average age of two years for a total cost of USD 772.4 million, of which USD 606.2 million has been advanced so far.

During the last few months, the company took delivery of 14 vessels that are now starting to generate revenue.

DryShips further said that “as a result of the successful execution of its fleet renewal program and in connection with the private placement and other transactions” it terminated the USD 226.4 million common stock purchase agreement with Kalani.

In a litigation update, the company informed that various complaints have been filed in the Marshall Islands and the United States alleging various violations by DryShips and/or two of its officers in connection with the securities laws of the two countries, requesting differing amounts of damages that in some instances have not yet been quantified.

“DryShips and its management believe these complaints are without merit and intend to vigorously defend themselves against these allegations,” the Greek shipowner stressed.

The company’s business results for the quarter show that DryShips remained in the red when compared to last year’s corresponding period, booking USD 15.6 million of net loss, up from USD 13 million loss reported in Q2, 2016.

The operator of oil rigs and dry cargo carriers posted revenue of USD 16.4 million in the period.

For the first half of this year, the company’s loss was reduced to USD 26.3 million from USD 74.4 million when compared to the same figures from 2016.

The results were announced just a day after DryShips closed its private placement that resulted in acquiring 49% of Heidmar Holdings LLC pursuant to a joint venture with Morgan Stanley. Heidmar is one of the largest independent tanker pool operators worldwide, commercially managing about 100 vessels.

“We are pleased to complete another step in the transformation of DryShips. Going forward, DryShips can look to the future with optimism given its strong balance sheet and young and diversified fleet being in prime position to take advantage of any recovery in the underlying shipping markets it operates in,” George Economou, the Chairman, and CEO of Dryships, commented.