Investors have filed class action lawsuit in New York District Court against Greek shipowner Dryships, and some of its officers, claiming the company engaged in a stock-manipulation scheme to artificially inflate its share price.
“In a series of transactions beginning on or around June 8, 2016, DryShips raised hundreds of millions of dollars by selling newly-issued shares 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,” a class action announcement by Stull, Stull & Brody (SS&B) reads.
The investors are seeking compensable damages caused by defendants’ violations of the Securities Exchange Act of 1934.
Pomerantz LLP and Goldberg Law PC have also joined the class action lawsuit on the same grounds.
As disclosed, the complaint claims that aside the alleged stock-manipulation scheme, DryShips’ 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.”
Specifically, it is believed that DryShips’ influxes of cash induced investor interest in the company, paving was for the issuance of more shares, which it then continued to sell to Kalani. Kalani ultimately acquired securities convertible to more than USD 626 million in DryShips common stock, roughly 100 times DryShips’ stock market value as of early November 2016, Pomerantz LLP said. Meanwhile, to counter share-value dilution and avoid NASDAQ delisting, DryShips executed a series of reverse stock splits.
On the other hand, it is claimed that as Kalani purchased DryShips stock with the intention of reselling, the transactions between DryShips and Kalani essentially constituted “pseudo-underwriting”. Moreover, the issuance of shares resulted in the dropping of diluted shareholder value, while the frequent fluctuation in DryShip’s common share price, caused by the company’s capital-raising, cost the shareholders hundreds of millions of dollars, the law-firm added.
Specifically, since November 2016, DryShips’ stock price has fallen about 99%, causing investors harm.
The class action in the US comes on the heels of legal action against DryShips, and its CEO, launched in the Marshall Islands on the grounds of breaches of fiduciary duty, unjust enrichment, and conflict of interest.
The plaintiff sought a temporary restraining order and preliminary injunction to suspend any further issuances of new common shares by the company at a price per share below the price specified in the complaint.
However, as informed by Dryships, the court denied the application.
“The court ordered the parties to submit written memoranda concerning plaintiff’s application for a preliminary injunction, and if the court should determine to hold oral argument, indicated that argument would proceed before the court at 4:00 p.m. (Majuro time) on July 17, 2017,” DryShips added.