The Ugly Truth Behind Dry Ships Inc. Betraying Investors

A strong rally in the dry bulk shipping sector over the past several months has led many investors to companies like Dry Ships  (NASDAQ: DRYS  ) . But before you hop on board, don't ignore one very big warning sign. Several related-party transactions are funneling millions of shareholder dollars into businesses privately owned by Dry Ships' CEO.

In 2012 alone, Dry Ships expensed $38.08 million from the company's coffers into several companies owned by the CEO. This included $6.2 million paid to the CEO in the form of stock-based compensation. These are just two of many worrying signs behind the related-party transactions taking place at Dry Ships recently.

In the video below, Motley Fool analyst Blake Bos explains exactly what a related-party transaction is, what kinds of transactions are taking place at Dry Ships, and whether investors should care about them.

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Read/Post Comments (14) | Recommend This Article (8)

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  • Report this Comment On October 18, 2013, at 9:50 AM, quickdraw12 wrote:

    107 institutions invest in DRYS. If you were correct all those institutions would have dumped their shares. This has not happened. and I doubt the claims you are making are correct.

  • Report this Comment On October 18, 2013, at 11:20 AM, ricjensen wrote:

    There is NOTHING about DRYS as important as Blake's point. Georgie has made huge sums of money with these "private deals". Look up Cardiff Marine go to there website and try to figure out who they are and who runs things. (The links don't work). He has some of the most incestuous business deals you could ever imagine. I am heavily into DRYS because at some point I think GE will profit much more via his holdings in DRYS and ORIG than he would with these back door deals with Cardiff. He also knows his stuff when it comes to shipping and survival. DRYS has survived, the million $ question is will George concentrate on the success of the companies, or continue to suck the blood from them.

  • Report this Comment On October 18, 2013, at 12:12 PM, quickdraw12 wrote:

    On 10/10/13 Nordea Securities upgraded DRYS from hold to buy. Are they wrong? Georgie is a Greek Tycoon. I am sure he has many private dealings which is not unusual. Do you have a proof he defrauded DRYS shareholders? Was there a lawsuit in the past accusing him of wrong doing?

  • Report this Comment On October 18, 2013, at 1:34 PM, TMFBos wrote:

    What Dry Ships is doing is not illegal, but it's not exactly moral. The majority of dry bulk shipping companies are operated exactly the same way, where the CEO's have consulting businesses on the side that handle all of the shippers day to day business. Dry bulk shipping has been set up like this for a long time now.

    If you look at a handful of dry bulk companies, you'll quickly notice they make no money over time. And they're not meant to in my opinion. The shipping companies today are essentially shareholder financed holding companies for ships/assets that the CEO's use to pay vast amounts to their private businesses. Basically, the publicly traded company is there to acquire and own the ships in order to have a profitable brokering business on the side.

    At the end of the day these publicly traded companies aren't producing sufficient amounts of FCF or any for that matter. Dry Bulk shipping stocks are a traders game from what I can tell, and long term investors seem to lose.

    This is how shipping really works:

    http://gcaptain.com/shipping-cynic-billion-invest/

  • Report this Comment On October 18, 2013, at 1:43 PM, TMFBos wrote:

    @quickdraw

    I can't say exactly why so many institutions own shares in DRYS, but keep in mind a lot of funds are quantitative funds now and could care less about the unquantifiable aspects of a business that affect long term shareholders. My only recommendation to investors is to really look into these shipping companies and see how you feel as a business owner about the way the companies are operated.

    Cheers,

    Blake

  • Report this Comment On October 18, 2013, at 2:18 PM, quickdraw12 wrote:

    Blake, do you honestly believe that companies such as Deutsche Bank, Fidelity and Vanguard don't know what they are holding in their mutual funds and ETFs? Their money managers are paid top dollars to select stocks for their funds.

  • Report this Comment On October 18, 2013, at 2:31 PM, imacg5 wrote:

    quickdraw,

    What is that "quick to draw conclusions?"

    Quick to defend George without actually doing your homework?

    Yes there was a lawsuit.

    Why don't you know this, before assuming Bos is lying.

    Here it is.

    http://securities.stanford.edu/1048/DRYS00_01/2012522_f01c_1...

    All the facts of the case can be backed up by SEC filings. The transactions were revealed to the public, and the PR always states how the deal will be good for shareholders. but no one that knew shipping agreed.

    George is no fool, but he thinks all the shareholders are.

    He has had all his dealings criticized by ship brokers, analysts, and of course shareholders.

    If you had done some studying over the years of this industry you'd know that.

    The lawsuit failed, because it was hard to prove that the intent was to defraud.

    It quite simply is not a crime to be incompetent in business deals.

    But everyone knows, that George isn't incompetent, (corrupt maybe), but not incompetent.

    Institutions own it to make money.

    I own it to make money.

    But it's a trade, because after six years, I know George.

  • Report this Comment On October 18, 2013, at 2:45 PM, imacg5 wrote:

    George likes to take credit for his great foresight in seeing the advantages of switching his ships to the spot market in 2006, to take advantage of the ship shortage and huge demand driving rates.

    He should take credit, it was genius.

    He also claims to have seen the market "mature", in 2008 which is when he moved the Capes to long term charters.

    He takes credit for that vision in a Oct. 2008 interview here:

    http://www.mobilitytechzone.com/news/2008/10/09/3694173.htm

    So, George if you saw that things were changing, and that supply would soon outstrip demand.

    Why would DRYS buy more ships at the top of the market, and pay top dollar for them?

    Because Cardiff needed to dump those ships that they paid too much for, in a falling market.

    And George owns all of Cardiff, (with his sister).

    George claimed when he made the deal, that the financing was in place.

    But when DRYS cancelled the deals, and paid millions to Cardiff in penalties, it was because DRYS could not secure financing.

    Why didn't George know that? He did.

  • Report this Comment On October 18, 2013, at 3:04 PM, imacg5 wrote:

    If you'd like to look up the transactions that Blake is referring to.

    Cardiff is the company that handles the ship chartering, crewing, and management of the fleet for DRYS, also referred to as TMS Bulk.

    George owns 70% of Cardiff, and the rest is owned by his sister Chrissy Kandilidis.

    Also, Fabiana services is the Consultant that receives compensation for George's services as CEO of DRYS.

    Then there is Vivid finance, who gets paid a percentage of all financial transaction. Every loan that is renegotiated,(they do that a lot), every purchase and sale of every ship.

    And every interest rate swap that they make as a hedge on their bent.

    Oh, George owns all of Vivid Finance. You have to pay extra for George to advise George on your financial transactions.

    Then, there is Basset Holdings, that would be Anthony Kandylidis, George's nephew. He owned OCNF before George paid way to much for it when it was about to go bankrupt.

    Now, Anthony is a special VP, and advisor to ORIG, after he received so much of the ORIG stock, as compensation in the OCNF merger.

    You can make money with with DRYS stock, it will be down again at the end of the year when the bDI falls again.

  • Report this Comment On October 18, 2013, at 3:40 PM, quickdraw12 wrote:

    I give it to you guys, you know all the in and out of this company. I decided to opt out because DRYS filed form 6K to sell up to $200,000,000 worth of shares from time to time. I can smell dilution coming. So I will stay out.

  • Report this Comment On October 18, 2013, at 4:27 PM, TMFBos wrote:

    @imacq5

    Thanks for all of the very insightful comments. I'm curious as how you find certain shipping stocks as good investments despite, what i feel, the horrid economics of the industry. Is it a short term trading play or do you see something else here?

    Cheers,

    Blake

  • Report this Comment On October 18, 2013, at 6:21 PM, imacg5 wrote:

    Hi Blake, I own NM for the long term, they were also a long term and conservative pick back in 2006 along with DSX.

    Right now DSX is in great shape because of their low debt and cash in the bank. But DSX is trading at a pretty high multiple. It will be awhile before they have the kind of earnings to support the share price.

    Their contracts are period charters, no exposure to spot rates, there are some Capes out there getting $20,000 per day for one year charters lately, but not many, and DSX hash;t signed anything especially lucrative.

    Even during the good years, dry bulk companies had PE's of 7-9 because they are cyclical.

    I have DRYS and SB as short term trades, because they are exposed to spot rates, DRYS is the best known, and SB is one of the healthiest.

    SBLK and PRGN are small, they have had reverse splits, dilution, insider buying, and they have both ridden far beyond what their earnings can support for now.

    The FFA's, (Forward freight Agreements), have rates dropping down in the first quarter 2014 to $13,500 for capes, and Panamax and Supramax are projected to drop below $10,000 per day.

    when the BDI drops, so will the stocks, even the ones with no spot exposure. First quarter is always the weakest because of the Chinese New Year, and iron ore stocks have usually peaked by then at 100 million tons at the ports. Steel demand in china has been healthy in China, but demand has not been enough to justify this much ore shipment. it is just the rebuilding of inventories that were very depleted.

    Here are some sources.

    www.clarksons.net

    www.gcaptain.com

    www.lloydslist.com

    www.lionshipbrokers.com

    www.bimco.com

    www.hellenicshippingnews.com

    www.reports.platou.com/Fixtures Report/Pages/ Bulk Fixtures.aspx

    www.tonmiletrader.com

    www.tradewinds.com

    www.intermodal.gr

    www.steelguru.com

    www.nilimar.com

    Good luck

  • Report this Comment On October 18, 2013, at 6:38 PM, imacg5 wrote:

    I messed up the tradewinds link.

    http://www.tradewindsnews.com

    Scrapping has come to a halt, and new ship orders have risen sharply.

    These guys will make the oversupply last for a long time.

    I'm not sure what the share prices will do when the new normal charter rate settles in at just above break even. The companies with high debt will still struggle.

    But the seasonal surges in the BDI will always make hearts flutter.

    My take is: It's a rally, don't call it a recovery.

    Hope you have Good Trading.

  • Report this Comment On October 21, 2013, at 7:21 PM, Karmaholic wrote:

    George has never cared about his shareholders and he has come out publicly many times to criticism with an attitude that simply says 'if you do not like it then do not own the stock'.

    As mentioned above, trading DRYS is the method to try and earn something of the shares, but buy and hold has been a huge mistake.

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