When stocks rose after last year’s presidential election, DryShips Inc. left the market far behind. The little-known Greek dry bulk carrier’s epic one-week rally pushed its shares up by 1,500% for no apparent reason, Wall Street Journal reports.
George Economou, DryShips’s chairman and chief executive, founded the company in 2004 and listed it on the Nasdaq in 2005.
The rally quickly unwound after the shares were briefly suspended by Nasdaq, but the run-up appears to have made possible a flurry of financial maneuvers that may earn the company’s founder a huge windfall, according to calculations by The Wall Street Journal, while small investors suffered hundreds of millions of dollars in losses. Since they peaked, DryShips’s shares are down by 99.9%.
Registered in the Marshall Islands in the central Pacific but based in Athens, the company owns ships that carry bulk cargoes like coal and iron ore. The industry has been battered in recent years by weak commodity prices and an oversupply of ships. Immediately before the share-price surge, the company announced it was suspending principal and interest payments “to preserve cash liquidity.”
Mr. Economou and the company didn’t respond to repeated requests for comment on the stock or how Mr. Economou benefited from share sales. They haven’t been accused of any wrongdoing and there is no evidence the company or its CEO engineered the stock rally. Small-company stocks, especially ones in financial distress like DryShips, are often highly volatile as investors try to profit from the big moves.
The sequence of events that could earn Mr. Economou tens of millions in profits began last September. First, through a series of transactions involving the company’s debt, Mr. Economou gained voting control of DryShips without exposure to the common stock, according to securities filings. Filings indicate he owns just 0.01% of the company. Second, the stock price soared, attracting the attention of thousands of fast-trading individual investors. Third, as the rally peaked, the company began issuing stock, which would total more than $500 million, at ever-diminishing prices. Fourth, DryShips used the money to buy ships in deals that benefited Mr. Economou, who earns management fees on its vessels, according to securities filings.
The CEO cemented 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.
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Source: Wall Street Journal