$300 million lawsuit filed against former Aegean directors with serious allegations against Melissanidis

by Lefteris Charalambopoulos

A very important lawsuit has been filed in a US federal court, the United States District Court for the Southern District of New York. The plaintiff is Peter Kravitz, trustee of the Aegean Litigation Trust, which was formed pursuant the Plan of Reorganization of Aegean Marine Petroleum Network Inc. and Its Debtor Affiliates that followed the case case filed by Aegean under chapter 11 of the United States Bankruptcy Code and the take-over of Aegean by Mercuria Energy.

The aim of the Aegean Litigation Trust is to handle litigation for the claims of Aegean and its affiliates. The Trust owns, among other things, the claims of Aegean Marine Petroleum Network and its affiliates against their former directors and officers

The defendants are E. Nikolas Tavlarios, Aegean’s president and Principle executive officer from December 2006 until June 1, 2017, Peter C. Georgiopoulos, chairman of Aegean’s board of directors from December 2006 until June 2017, John P. Tavlarios, member of Aegean’s board of directors from December 2006 to June 2017, and George Konomos, member of Aegean’s board of directors and chairman of Aegean’s Audit Committee from November 2008 through June 4, 2018.

See the whole lawsuit

The case “seeks to recover over $300 million from Defendants for their bad faith dereliction of duty that caused the financial destruction of Aegean Marine Petroleum Network, Inc.”.

According to the lawsuit the defendants “turned their heads as Melisanidis essentially had his way with the Company and rendered it hopelessly insolvent”, the result being that “Melisanidis ultimately misappropriated over $300 million from Aegean by 2018, enriching himself and his family at the Company’s expense”.

According to the lawsuit even though Dimitris Melissanidis formally relinquished his executive positions with Aegean in 2006, he maintained power and access with respect to the Company, including “the right to appoint the very executive officers and post-IPO directors to whom he was supposed to report”. The lawsuit refers to Melissanidis’s previous criminal indictments and insists that the “Defendants’ considerable prior experience with Melisanidis—along with their knowledge of his checkered background that necessitated his resignation of his positions at Aegean prior to the IPO—should have led Defendants to ensure implementation at Aegean of robust internal controls, reporting mechanisms, and oversight procedures”.

According to the lawsuit, Melissanidis caused Aegean to hire one of the entities controlled by him, OilTank Engineering and Consulting, Ltd, to provide consulting services in connection with the construction of an in-land oil storage facility in Fujairah, United Arab Emirates. According to the lawsuit, “Melissanidis used the Fujairah Facility construction as an opportunity to pillage Aegean”.  The construction budget of the facility sky-rocketed and Aegean “finally completed the Fujairah Facility in 2014 at a total cost of $221.9 million, more than double the initial estimate”.

According to the lawsuit, “Melisanidis caused Aegean to funnel at least $68 million to OilTank to satisfy fake invoices, purportedly for the ‘consulting’ services it provided to AOTC throughout the project. An additional $58 million in expenses related to the construction of the Fujairah Facility remains unaccounted for, funds that, upon information and belief, were also transferred to OilTank and other Melisanidis-controlled entities.”

The lawsuit also makes allegations about likely “substantial payments from OilTank directly to AEK”, football club that Melissanidis controls.

According to the lawsuit “even after Aegean completed the Fujairah Facility in 2014, Melisanidis continued to defraud Aegean by diverting funds to OilTank.” The lawsuit describes this as the “Fake Trade Receivables Scheme”.

This included a series of contracts with four shell entities: Abdul Azim Trading FZE, Miami Exports Group LLC, Savina Maritime Ltd., and South Seas Maritime Ltd. According to the lawsuit, “through its subsidiary Aegean Marine Petroleum, SA, Aegean entered into approximately 40 contracts with the Shell Entities that facially indicate that Aegean and the Shell Entities would exchange more than 8.05 million metric tons of fuel oil for a total of approximately $2.07 billion.” Consequently, “by feigning these transactions’ Aegean could amass nearly $200 million in receivables for fuel oil exchanges that purportedly took place in 2016 and 2017.

However, the plaintiff insists that ‘no such transactions ever occurred.” The agreements between Aegean and the Shell Entities reflect the exchange of over 8.05 million metric tons of marine fuel in 2016 and 2017. However, the Fujairah Facility’s throughput during the same period was just 1.2 million metric tons. It was “impossible for Aegean to process the volume contemplated by the contracts.”

According to the lawsuit, “Melisanidis used the $200 million in fake Company assets as cover to misappropriate Aegean’s money for himself and his family.” Moreover, OilTank continued receiving substantial Post-Construction Transfers from Aegean totaling approximately $186 million between June 2015 and January 2018, long after construction of the Fujairah Facility was completed in 2014.

According to the lawsuit, another company, Grady Properties—controlled by Melisanidis’s son, Georgios Melisanidis— “also participated in the Fake Trade Receivables Scheme”. Grady Properties received over $30 million in Post-Construction Transfers between 2015 and 2017 from Aegean, even though there is no evidence that Grady Properties ever provided any services to Aegean. Only in May 2017, Grady Properties transferred approximately $25 million back into Aegean.

One of the main allegations of the lawsuit is that the “Fake Trade Receivables Scheme masked the illegitimate Post-Construction Transfers and had a substantial effect on the apparent financial health of Aegean.” In 2015 and 2016, Aegean posted positive net income but this included purported profits from the “Fake Trade Receivables Scheme.”

All these became known as a result of the audit performed by the 2018 Audit Committee Investigation. However according to the lawsuit the defendants “had access to the same information that led to the findings” of the committee: “Had Defendants exercised their fiduciary responsibility to monitor Aegean’s operations, they would have reached the same conclusion as the 2018 Audit Committee Investigation and could have prevented the Fake Trade Receivables Scheme and the Post-Construction Transfers.”

Moreover, according to the lawsuit the defendants “took no action to prevent Melisanidis from staging a repurchase of his stake in the Company as an additional measure to conceal the Fake Trade Receivables Scheme.”

The lawsuit refers to Melissanidis selling his stake in the company for $100 million, causing a “severe liquidity problem” even before it had actually paid for Melissanidis’s shares.

Finally, the lawsuit refers to the actions taken by the investors that in 2017 challenged the practices of Aegean’s Board and demanded proper oversight. According to the lawsuit, “Melisanidis took swift action to thwart the possibility that newly appointed directors would uncover his fraudulent schemes.” On February 2018 Aegean announced its intent to acquire HEC, a company controlled by Melissanidis.

The price in consideration totaled $367 million and a portion would have been paid in Aegean common stock.

According to the lawsuit this would have made Melissanidis “a 33% owner of Aegean” and he would have had “the ability to form a quorum for voting purposes.” If the agreement were pursued, Melissanidis would have acquired significant control over the company.

What followed was the reaction of investors leading to the cancellation of the HEC acquisition, the work of the Audity Committee Investigation, that announced that “up to $300 million of Company cash and other assets were misappropriated through fraudulent activities”, and finally the case filed under Chapter 11 of the US Bankruptcy Code.

According to the lawsuit the defendants breached their fiduciary duty because they failed to monitor the company’s systems of internal control, insider transactions and financial dealing.

We can assume that the reason why this lawsuit was filed against these former Aegean Directors and not Dimitris Melissanidis, has to do with the fact that since relinquishing his executive position in 2006, Melissanidis did not have any executive duties in Aegean. However, it should be noted that the Greek Courts have accepted in decisions on lawsuits that Melissanidis’s position of control inside Aegean should be taken as a fact.