Aegean Fraud Now Believed to be $300 million, Involved Over a Dozen Employees, Started as Early as 2010

Friday November 2, 2018

Aegean Marine Petroleum Network [NYSE:ANW] has announced it now believes up to $300 million of its cash and other assets were misappropriated through fraudulent activities that started as early as 2010 and involved over a dozen company employees, including members of senior management.

As a result, the bunker supplier's has warned its financials issued since at least 2015 should no longer be relied upon, and its revenues and earnings were "substantially overstated" in the years 2015, 2016 and 2017.

The bunker supplier previously believed it had uncovered a $200 million fraud at the firm.

The news came today as the bunker supplier released the results of its Audit Committee investigation, saying it had discovered "substantial misappropriation of company assets."

Aegean says the principal beneficiary of the misappropriation is OilTank Engineering & Consulting Ltd. (OilTank), a company based in Fujairah and incorporated on March 15, 2010 in the Marshall Islands.

On March 31, 2010 OilTank entered into a contract with Aegean's subsidiary to oversee the construction of the Fujairah Oil Terminal Facility, and it is believed this contract was used to misappropriate company funds through inflated contracts and fraudulent pricing.

The Audit Committee says it has reason to believe that OilTank is controlled by a "former affiliate" of Aegean, but did not name them.

Other key points from todays announcement are:

  • Confirmed approximately $200 million of receivables are uncollectible and will be written off.
  • The investigation also uncovered additional actions to defraud the company dating back to at least 2010 including prepayment for future oil deliveries that were never made.
  • Over a dozen employees, including members of senior management, were involved. The employees who directed the scheme have been terminated.
  • The Audit Committee believes that this misconduct occurred in part because the "Former Affiliate" has exerted significant control over Aegean's personnel and assets through various inappropriate means, including threats of economic retaliation and physical violence. In addition, the "Former Affiliate" continues to have access to and control over the company's electronic and physical files.
  • At part of its investigation, efforts to obtain access to relevant emails and other electronic data stored on Aegean server "were and continue to be obstructed as a result of, among other things, the threats of retaliation against Company personnel, and at least one attempt to delete and permanently erase documents from the Company's server through the remote installation of data deletion software by a person with administrator access."
  • The Hellenic Data Privacy Authority (HDPA) issued a provisional order which prohibited the review or use of emails and other files that were collected from Aegean's server in PiraeusGreece. The Company is actively litigating the HDPA's order.
  • On October 3, 2018 Aegean received a grand jury subpoena from the U.S. Attorney's Office for the Southern District of New York in connection with suspected felonies.
  • Aegean's revenues and earnings were substantially overstated in the years 2015, 2016 and 2017, but the full impact or how the necessary adjustments will be recorded cannot currently be determined.
  • Other adjustments may arise as a result of the restatement process that could further impact its financial statements for specified periods.

Aegean says it has taken various steps in response to the investigation, including:

  • moving its principal executive offices from its current location 
  • terminating related party transactions
  • replacing senior management involved in accounting, finance, credit, supply, and terminal management functions
  • terminating personnel who were involved in the misconduct; centralizing company systems and controls
  • addressing various cybersecurity issues
  • strengthening its senior management team

"Additional information could be discovered through ongoing investigatory activities or as a result of the preparation of restated financial statements. Such information could result in the Company having to make additional adjustments to one or more of the Affected Financial Statements, or identifying and having to remediate other material weaknesses in its ICFR," Aegean concluded.