A ship in the DryShips fleet off the coast of Oregon.


Kyle Stubbs

Before meme stocks, there was DryShips Inc. Shares of the Greek shipping company on the edge of bankruptcy rose 1,500% in four days in November 2016.

The stock’s rise lit up message boards and drew in small investors, making it one of the most traded on the Nasdaq stock exchange. But, unlike


the frenzy of orders that followed over the next several months was almost entirely in new shares created and sold to the unsophisticated investors. The shares fell more than 99% in subsequent months.

Behind it all was a Canadian hedge fund and the company’s controlling shareholder, a Greek shipping tycoon named

George Economou.

Now the hedge fund and its chief investment officer,

Marc Bistricer,

have agreed to pay a combined $8.15 million to the Securities and Exchange Commission for allegedly violating trading rules. Mr. Bistricer and his fund, Murchinson Ltd., didn’t admit to or deny the SEC claims.

The men used a complicated arrangement that involved subsidiaries of the fund and the shipper. The SEC alleged that a group of companies controlled by Mr. Bistricer executed hundreds of millions of dollars in transactions in 2016 and 2017 in stocks that Murchinson’s subsidiary was “deemed to hold” when it hadn’t yet bought them. That allegedly violated short-selling regulations, the SEC said.

While the securities in question aren’t named, DryShips issued a similar amount of stock to a British Virgin Islands firm called Kalani Investments Ltd. in that time period, according to securities filings. That company, The Wall Street Journal reported, was controlled by Murchinson.

Mr. Bistricer approached the shipper’s chief financial officer, Anthony Kandylidis, nephew of Mr. Economou, the controlling shareholder, in 2016 with a plan to recapitalize the company by purchasing enormous quantities of convertible securities, the Journal reported.

George Economou, a Greek shipping tycoon who was the controlling shareholder in DryShips.


Benjamin Lozovsky/BFA

Kalani was in fact selling the shares before taking economic ownership, the SEC said. By doing that, it was acting as an issuer of stock, which requires a license, rather than as an investor with its own money at risk, according to securities law experts at the time and the SEC settlement.

Mr. Bistricer declined to comment through his company’s representatives. Mr. Economou didn’t respond to requests for comment.

Between November 2016 and August 2017 the stock price fell precipitously and underwent numerous reverse splits approved by Nasdaq in order to remain in compliance with listing requirements. The shares eventually lost 99.9998% of their value.

The SEC issued a subpoena to DryShips in 2017 asking for information about the stock sales. The company wasn’t mentioned in the settlement with Mr. Bistricer and its former executives didn’t immediately respond to requests for comment about Murchinson’s settlement.

Mr. Economou, who maintained voting control with a negligible economic interest in the shipper, also benefited personally. He purchased the company’s bank loans at a discount before most of the share sales and controlled a ship management company that was paid fees by DryShips that rose as it used the proceeds from the share sales to acquire several new vessels. Mr. Economou later reversed course and bought out the company through another offshore company he controls, SPII Holdings Inc., in 2019, delisting its shares from Nasdaq.

As part of the agreement, Murchinson agreed to revise its compliance policies with short-selling regulations and to undertake annual training for its employees.

Write to Spencer Jakab at spencer.jakab@wsj.com

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