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How Diana Shipping Inc.’s $1.1 Million Fine Exposes a Major Problem

For those unfamiliar with the fine recently levied against Diana Shipping (NYSE: DSX  ) , it was for $1.1 million, and came with 3.5 years of probation for illegally discharging waste oil and oil-contaminated waste water from one of its ships.This fine was actually levied against Diana Shipping Services, a wholly owned subsidiary of Diana Shipping, which manages the day-to-day operations of its fleet. The fine presents a good opportunity to bring up another troubling issue facing Diana Shipping investors today -- related party transactions.

The details behind the transactions
These transactions revolve around Diana, and two other companies controlled by the CEO, called Diana Enterprises, and Altair Travel Services.The monies paid to these two companies totaled $5.8 million dollars in 2012, and are up 68% since 2010. 

Diana Enterprises has an agreement with the company for the provision of brokerage services for a fixed monthly fee of $0.2 million, or $2.4 million per year, until March 31, 2014. Brokerage fees can range from the obtaining of contracts for shipping voyages to selling or buying ships. Altair Travel Services received $3.0 million in 2012 for travel-related services. 

These are just two of the most recent related party transactions, but going back to 2010 thru today, investors can see the company purchased two of the CEO's separately controlled businesses for $21.5 million -- Universal Shipping and Real Estate, and Diana Shipping Agencies S.A.. .

Do these transactions actually matter?
All related party transactions are not created equally, and don't always have negative implications; but in Diana Shipping's case, it's hard to argue that shareholders aren't suffering from these transactions. In the video below, I go over Diana's new fine, what these related party transactions mean, and my personal opinion on how to handle them.

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9/23/2016 4:02 PM
DSX $2.93 Down -0.09 -2.98%
Diana Shipping CAPS Rating: ****