Rising and falling like a ship in a storm, the state of the Greek company DryShips is still in a storm but its Chairman and CEO, George Economou, may have made untold millions of dollars as it was buffeted.
The wild ride was charted by the Wall Street Journal in a report which said there was no apparent wrongdoing or fixing, but that a series of fortuitous events made him rich while after the company’s value initially soared 1500 percent right after the Nov. 2016 Presidential elections, its shares quickly plummeted 99.9 percent.
It’s a bizarre tale of how Economou, who owns only 0.01 percent of DryShips, made himself even richer through a series of tricky maneuvers before the company’s shares were briefly suspended by Nasdaq.
The stock exchange overall saw a sharp rise after Republican Donald Trump’s surprise win for the Presidency but nothing like the meteoric soaring of DryShips for reasons still yet fathomable.
And despite its sinking share prices that saw small investors lose hundred of millions of dollars, individual investors remain obsessed with DryShips.
Since the mysterious surge in its price, there have been an average of more than 17,000 mostly bullish mentions a week of DryShips on social investing site StockTwits, a favorite of fast-trading small investors., the WJ said. That is more than 100 times its average weekly mentions before the mid-November frenzy.
Like many Greek shipping companies who don’t want to pay taxes in their homeland during a crushing economic crisis, DryShips carries a foreign flag, from the Marshall Islands, although it is based in Athens, and specializes in carrying bulk cargo such as coal and iron ore and grains.
While the industry has been battered in recent years by weak commodity prices and an oversupply of ships – and just before the share-price surge, the company announced it was suspending principal and interest payments “to preserve cash liquidity” – Economou became King of the Waves through several tidal changes he helped engineer.
UPS AND DOWNS
He founded the company in 2004 and listed it on the Nasdaq in 2005. The report noted that
small-company stocks, especially ones in financial distress like DryShips, are often highly volatile as investors try to profit from the big moves.
WSJ listed factors behind a rally seen unprecedented in the sector:
- Through a series of transactions involving the company’s debt, Economou gained voting control of DryShips without exposure to the common stock, according to securities filings
- The stock price soared, attracting the attention of thousands of fast-trading individual investors
- As the rally peaked, the company began issuing stock, which would total more than $500 million, at ever-diminishing prices
- DryShips used the money to buy ships in deals that benefited Economou, who earns management fees on its vessels, according to securities filings
Economou solidified his control of DryShips two months before the shares took off by converting loans to the company that he owned into a new series of preferred stock that confer 100,000 votes apiece. That stock wasn’t affected by the share price run-up or collapse.
The rally between Nov. 9 and Nov. 16 led the company’s market value to surge from about $5 million to about $80 million.
A day after shares peaked, the company embarked on a series of stock sales totaling more than $500 million so far, according to securities filings. Those documents show the buyer was a British Virgin Islands company called Kalani Investments, but DryShips’s shareholder records don’t list Kalani or any other institution, meaning the firm in turn sold the shares to small investors. DryShips says Kalani is independent of the company. Contact information for Kalani couldn’t be obtained to request comment.
WHERE’S THE MONEY?
DryShips’s shares would ordinarily be worth pennies following the big decline. The company has avoided that through repeated reverse stock splits that reduce the number of shares outstanding without affecting the company’s value much at all.
Despite issuing over $500 million in stock since November, DryShips’s market value is less than $70 million.
WSJ said the company has used the proceeds from the share sales to buy or acquire options on several hundred million dollars’ worth of ships, likely at attractive prices because of a glutted market, one way Economou has profited.
The rise-and-fall of DryShips brought him sharp critics after the one-week phenomenon. Giovanni DiMauro – who earlier called Economou “The Worst CEO in the World,” wrote on the site SeekingAlpha: “Economou managed to completely destroy any shareholder value over the last several years with massive dilution. Believe it or not the share count went from nearly 700M earlier in the year to just over 1.1M today.
‘In my history as a trader I have never seen so many reverse splits. The SEC should be ashamed of themselves for allowing this company to be publicly traded.”
DiMauro earlier had written that Economou “ is possibly the most arrogant and uncaring CEO of all time. He is a habitual diluter of shareholder value and not to be trusted.”
Economou, 63, is also owner of Cardiff Marine, which manages his dry bulk ships. He has ranked 707th on Forbes’ list of bilionaires with an estimated worth of $1.7 billion.
He was born in Athens, where his father owned a small paper-products company. He studied at the Massachusetts Institute of Technology, earning degrees in Naval Architecture and Marine Engineering, and a Master’s in Shipbuilding Management but has been accused of running DryShips like a private company for personal profit at shareholders’ expense, destroying any shareholder value over the last several years with massive dilution and dubious forms of financing.
The WSJ said he controls entities that manage the vessels for DryShips for fees that earn him several million dollars a year, according to company filings. He also consolidated over 90% of its debt with a further provision that gives another company he controls 30% of any gains earned by the company if certain vessels are later sold.
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