Suit Claims Diana Containerships Robbed Stockholders in Series of Financial Transactions

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Diana Containerships Inc., its CEO, CFO, and president are facing a proposed class action lawsuit alleging the defendants engaged in a series of stock transactions that effectively robbed shareholders of 99 percent of the value of their shares. The suit describes the following “manipulative financing scheme” that began with the defendants’ decision to sell company stock to an entity named in the complaint as “Kalani”:

“Through his control of Diana, [Diana’s CEO] caused Diana to sell its common shares and securities convertible into common shares to Kalani at a significant discount to market price and to file registration statements so that Kalani could resell these shares into the market. When Kalani’s sales of Diana stock caused the price of Diana stock to decline, the Company would reverse split the stock, causing a certain number of outstanding shares to be merged into a single share, and thereby raise the price of Diana stock. Then Diana would again sell securities to Kalani and the same pattern of transactions would ensue.”

According to the suit, the cycle resulted in stockholders losing the value of their shares while the millions of dollars generated by the transactions were allegedly used to pay other companies owned and operated by Diana’s CEO.

The complaint argues that the defendants issued misleading statements and notices to stockholders regarding the transactions that neglected to disclose the true purpose of the company’s financial decisions.