Multiple legal firms have launched investigations into the actions of DryShips Inc. (NASDAQ:DRYS), CEO George Economou, and Kalani Investments Limited over possible violations of federal securities law. Scott+Scott, Bronstein, Gewirtz & Grossman LLC, and several others cite an article recently published in the Wall Street Journal that describes potentially unlawful actions taken by Economou during DryShips’ November short squeeze rally after Donald Trump’s victory in the U.S presidential election.
Specifically, the investigations are looking to determine whether or not DryShips violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934. These sections relate to insider trading and deceptive practices.
The Wall Street Journal article came at a bad time for DryShips, and the stock has been falling by the double-digits every day since the story broke. In response, Economou has authorized another R/S split to keep DryShips from being delisted from the NASDAQ. The R/S split was announced in a press release that also updates investors about the decisions made at the company’s annual meeting and schedules the date of first quarter earnings for 2017.
Earnings Date Announced & Another Stock Split
DryShips’ first quarter results are scheduled for May 10, 2017 after the market closes at 4p.m eastern standard time. With significant weakness in the Baltic Dry Index, the company’s results will probably not be impressive.
The press release also reveals that Economou was elected as Class A director to serve until 2020, and the DryShips Articles of Incorporation were amended to, quote:
“effect one or more reverse stock splits of the Company’s issued common shares at a ratio of not less than one-for-two and not more than one-for-1000, inclusive, with the exact ratio to be set at a whole number within this range to be determined by the Company’s board of directors (the “Board”), or any duly constituted committee thereof, at any time after approval of each amendment in its discretion, and to authorize the Board to implement any such reverse stock split by filing any such amendment with the Registrar of Corporations of the Republic of the Marshall Islands.”
This amendment to the Articles of Incorporation appears to authorize the company to perform stock splits of up to one-for 1000, but the wording of the quote is unclear.
The amendment is followed by a one-for- seven reverse stock split that will take place on May 11, 2017, the day after earnings. After the stock split, the total amount of shares outstanding will be reduced from 65,564,307 to approximately 9.4 million, according to the press release. DryShips does R/S splits every time its stock price falls to $1.00 per share because this is the threshold for NASDAQ delisting. The stock splits are usually followed by dilutive capital raises with Kalani Investments Limited.
The bad news is beginning to mount, and this might be the beginning of the end for DryShips. Even if these legal investigations do not yield any meaningful results, they will undoubtedly put negative pressure on DryShip’s stock price and make harder for the company to raise money in the capital market. Believe it or not, there was still people invested in DryShips – and these legal investigations and constant R/S splits by be the final straw for the company’s most stubborn investors.
As of this writing, DryShips shares are falling over 30% to $0.72.
Disclaimer: The author has no position or business relationship in any stock or company mentioned in this article, and he has no plans to initiate. The author is not receiving compensation for this article expect from Smarter Analyst. This article is intended for informational and entertainment use only, and should not be construed as an investment advice.