Overseas Shipholding Executives Sued Over Debt Offering

The state of Indiana sued directors and officers of Overseas Shipholding Group Inc. (OSGIQ) on behalf of investors in a $300 million debt offering over accounting inaccuracies that helped lead to the company’s bankruptcy filing.

The state accused the shipping firm’s board members and executives, as well as underwriters on the offering including Citigroup Inc., Morgan Stanley (MS) and HSBC Securities (USA) Inc. (HSBA) of violating U.S. securities law, according to the complaint filed Dec. 24 in New York federal court.

Overseas Shipholding, the largest U.S. tanker operator, sought bankruptcy protection in November less than a month after disclosing that its financial statements from 2009 through the first two quarters of 2012 failed to include certain tax liabilities. Offering documents for the notes also contained inaccuracies, according to the complaint.

“The impact of the defendants’ admissions on debt purchasers was devastating,” lawyers for the state said in the complaint, regarding the disclosures about the accounting inaccuracies. By Nov. 20, the 8 1/8 percent senior notes were trading roughly 75 percent below the offering price, “inflicting substantial harm on plaintiff and class,” according to the complaint, which was filed in Manhattan.

Board Resignation

The accounting inaccuracy disclosures and bankruptcy filing followed an announcement by the New York-based company on Oct. 3 that board member G. Allen Andreas had resigned over a disagreement with the board “in reviewing a tax issue,” according to the complaint. Andreas is named as a defendant in the suit.

On Nov. 21, a separate investor in the senior notes, Paul Otto Koether IRA Rollover also filed a class action on behalf of Overseas Shipholding debt investors in Manhattan state court. The investor alleged that underwriters are liable for damages as much as the amount of the securities each handled in the offering.

Citigroup, Morgan Stanley and HSBC, which acted as book runners, together handled $225 million of the notes, receiving total fees of about $4 million, according to the state court suit.

The case is Indiana Treasurer of State v. Andreas III, 12- cv-9363, U.S. District Court, Southern District of New York (Manhattan). The state court case is Paul Otto Koether IRA Rollover v. Arntzen, 654037/2012, New York Supreme Court, New York County (Manhattan).

To contact the reporter on this story: Christie Smythe in New York at csmythe1@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net