Aegean's Alleged $300m Fraud Detailed in New Lawsuit

Alleged Aegean fraud detailed in court documents. Image Credit: Ship & Bunker / Pixabay

Details of an alleged $300 million fraud at former physical bunkering heavyweight Aegean Marine Petroleum Network (Aegean) have been laid bare in a new lawsuit brought against a group of four former directors and executives.

The case, brought by a group of creditors via the Trustee of the Aegean Litigation Trust, names Aegean's former president Nikolas Tavlarios, and former directors Peter Georgio­poulos, John Tavlarios, and George Konomos as defendants.

"This 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....
one of the world's largest marine fuel suppliers," the complaint reads.

It is alleged that the four neglected their duties and allowed Aegean founder Dimitris Melisanidis to misappropriate over $300 million from Aegean by 2018.

Melisanidis, who has previously denied any wrongdoing, is not named in the lawsuit.

Despite stepping down as CEO in 2006, it is alleged that Melisanidis never relinquished control over the company - a fact key to much of the alleged fraudulent activity.

Fujairah Oil Terminal

Many of the alleged indiscretions centre around Aegean's Fujairah oil terminal project.

This includes allegations that Melisanidis caused Aegean to hire an entity he controlled called OilTank Engineering and Consulting, Ltd (OilTank) that during the terminal's construction was paid between $68 million and $126 million for which Aegean received nothing of value in return.

After the construction project was completed, Melisanidis is also alleged to have transferred approximately $186 million between Aegean and OilTank or other entities he controlled.

Among the alleged schemes described in the compliant, Melisanidis is accused of causing Aegean to enter into a series of contracts with four shell entities: Abdul Azim Trading FZE, Miami Exports Group LLC, Savina Maritime Ltd., and South Seas Maritime Ltd.

"None of the Shell Entities conducted legitimate business with Aegean, and each is affiliated with known associates of Melisanidis," the complaint states.

Aegean is alleged to have entered into approximately 40 contracts that envisaged the shell entities selling off-spec fuel to Aegean, who would then blend and sell it back to the Shell Entities at a higher price.

The contracts were said to involve more than 8.05 million metric tonnes of fuel oil for a total of approximately $2.07 billion.

"By feigning these transactions, Aegean was able to amass nearly $200 million in receivables for fuel oil exchanges that purportedly took place in 2016 and 2017. But no such transactions ever occurred," the complaint reads.

"A typical oil sale transaction produces substantial documentation, including bunker inspection reports, distribution of samples, final inspection reports, notices of apparent discrepancies, load inspection reports, and shore tank reports, among other documents. No such documents exist to evidence any legitimate transactions between Aegean and the Shell Entities. Even basic monitoring and due diligence by Defendants would have revealed these irregularities."

The complaint also claims that it was impossible for Aegean to process the volume contemplated by the contracts as they involved the exchange of over 8.05 million metric tonnes of marine fuel in 2016 and 2017, but the Fujairah facility's throughput during the same period was just 1.2 million metric tonnes.

In a separate accusation, Aegean is alleged to have paid $6 million to Grady Properties Corporation SA in 2014, a company controlled by Melisanidis's son, Georgios Melisanidis, but Aegean is said to have received nothing in return.

The extent of the alleged fake trade receivables was such that, according to the complaint, without the suspect transactions Aegean's reported net income of $38.5 million for 2015 would have been negative $55.7 million, its $51.9 million net income for 2016 reduced to negative $83.3 million, and the negative $38.5 million net income reported for 2017 actually negative $56.2 million.

Shareholders

The alleged fraud first came to light in June 2018 shortly after a group of shareholders critical of the bunker supplier's at-the-time management joined the board.

However, shortly after the full extent of the alleged fraud was revealed last November, Aegean filed for bankruptcy.

The bunker supplier emerged from Chapter 11 restructuring in April as Minerva Bunkering.

As part of the restructuring proposal a Litigation Trust was created with the goal of recovering misappropriated funds to pay Aegean's outstanding creditors.

"Aegean should not have been depending on the appointment of new directors in May 2018 to uncover Melisanidis's fraud. Defendants should have acted long before their appointment to monitor and control Aegean's operations in a manner designed to prevent such misconduct," the complaint reads.

"Defendants, through their bad faith dereliction of duty, allowed Melisanidis to defraud Aegean of tens of millions of dollars, leaving it hopelessly insolvent."

The case is filed in the New York Southern District Court as Kravitz v. Tavlarios et al / 1:19-cv-08438