Litigation Coverage: Moby Accuses Bondholder, Morgan Stanley of Trying to Scuttle Restructuring, Seize Control of Company Through ‘Economic Piracy’; Seeks Injunction to Bar Defendants From Purchasing More Notes

Relevant Documents:
Complaint
Memorandum - Injunctive Relief
Order to Show Cause

Today Moby SpA sued Antonello Di Meo, Morgan Stanley and Morgan Stanley employees Massimo Piazzi and Dov Hillel Drazin in the Southern District of New York for “attempting to illegally acquire control” of the Italian ferry company and its Italian concordato restructuring proceeding by purchasing a controlling stake in Moby’s bonds at a “substantial discount using inside information.” The company also seeks an injunction barring the defendants, which Moby says hold 26.33% of senior secured notes, from “acquiring, selling or otherwise trading any notes issued by Moby,” “attaching any Moby assets” or “otherwise interfering with Moby’s restructuring,” which the company says will soon include a chapter 15 filing in the United States.

U.S. District Judge Gregory Woods entered an order this afternoon directing the defendants to show cause why an injunction should not be issued at a hearing on Oct. 5 at 10:30 a.m. ET. The defendants’ written responses are due Oct. 1.

Moby anticipates filing a chapter 15 proceeding soon, according to the company’s memorandum of law in support of injunctive relief, but cannot wait to seek an injunction against the defendants’ “continuing efforts to illegally disrupt the restructuring and thwart the hard-fought understandings that Moby has with its creditors.” Without an immediate order barring the defendants from acquiring more bonds, Moby says, they will “acquire a sufficient quantum of bonds in order to secure majority bondholder status” and “single-handedly determine Moby’s future, including by vetoing Moby’s restructuring plan and, instead, requesting that the Milan Tribunal liquidate the Company” (emphasis added).

According to Moby’s brief, Di Meo, formerly of Sound Point, is an “Italian vulture investor” who has conspired in an “illegal scheme” with Morgan Stanley to “assume control of, liquidate and dismember the Company.” Moby alleges that Di Meo received confidential information regarding Moby’s restructuring plan and finances after signing a nondisclosure agreement and is now using that information “to acquire additional bonds” for himself and Morgan Stanley.

Moby further contends that Morgan Stanley is “intentionally concealing the fact that it holds at least a 10% proprietary (ownership) position in the bonds” by using Di Meo as a “straw person” to hold this stake. Moby suggests that a recent run-up in the price of its notes can be traced to Di Meo and Morgan Stanley purchases.

In support of these allegations, Moby relies heavily on “recordings of conversations by Di Meo and Morgan Stanley” with an unnamed “global third-party investigative services firm” between May 19 and Aug. 22. Transcripts of these recordings are attached as an exhibit to a declaration from Moby’s counsel, with excerpts quoted in Moby’s memorandum.

Moby says that Di Meo told the investigative firm, which was apparently undercover as representatives of a potential investor, that the “whole idea” is that “I need to buy ... and make sure that I have 100% of control of the restructuring plan, which means I put forward a plan and I vote, and nobody can block me, that’s 100% controlled.” Further, Moby says, Di Meo told the investigative firm that his alternative plan would provide “for a change in ownership, total or partial, of the current shareholdings,” with his group taking over “the relative majority of the equity in the restructured business.” Di Meo suggests that the “ballpark” recovery for other creditors under his plan would be “20 cents in a dollar over the life of the plan,” perhaps five years, using a new equity investment and the sale of two vessels “at a very low valuation.”

According to Moby, Di Meo has admitted that he keeps his purchases secret by using Morgan Stanley as a counterparty with broker-dealers. “So, the trustee then has the money in the client account, then once I give him the direction, give a bid to the broker-dealer on these bonds at this price, the broker-dealer will give the bid to Morgan Stanley, and Morgan Stanley will buy the bonds from the hedge funds,” Moby quotes Di Meo as saying in one of his conversations with the investigative firm.

“[T]he move to have 100% control is to buy [a bondholder] out,” Moby quotes Di Meo as telling the investigative firm. “I know it will take 50 to 60 cents on a dollar to buy this [bondholder] out, which means €25 to €30 million. If your money is coming in, we will do it with your money. If your money is not coming in, I will put some millions, and Morgan Stanley will put the rest.” Moby says that Drazin, one of the Morgan Stanley defendants, told the investigative firm that “we definitely have the capacity to increase the exposure if we need to, in particular, to affect an outcome.”

The plan would require “some fresh equity,” Di Meo adds in Moby’s excerpts, “to create the asymmetry to reduce the creditors’ recovery to the maximum we can, so that our equity investment is worth much more in the remaining perimeter.” “The other guys [bondholders] will never try to defend themselves once they know that I have the votes in the bondholders’ meeting to push the plan I want,” Di Meo is further quoted as saying. “They will come and knock on my door asking me to join the group, but I don’t need their votes anymore, at that point.”

Moby maintains that Di Meo has disclosed confidential information provided to him as a noteholder to third parties, including the Morgan Stanley defendants. Di Meo has also leveraged confidential information, Moby continues, “to determine when, from whom, and how many Notes the Defendants must acquire to obtain a majority voting stake.”

According to the memorandum, Di Meo told the investigative firm that other noteholders are “formally speaking with the company, but they’re not going to rush the negotiation before September because they also understand that the court and the state, in some way, will effectively push out the current shareholder from the governance.” Di Meo is also quoted as saying that a Morgan Stanley trader would be “nervous” about participating in a meeting with unknown third parties “where I will be disclosing what can be considered material, non-public, price-sensitive information.”

Moby asserts that Di Meo also shared confidential information with the Grimaldi Group, “Moby’s primary competitor,” and “prominent Italian political figures,” including some at the Italian Ministry of Economic Development. According to Moby, Di Meo told the investigative firm that the Grimaldi Group and the Ministry of Economic Development “favor a change in Moby’s governance and would give him carte blanche to run the Company his way should Defendants succeed on their scheme.” With respect to the Grimaldi Group, Moby quotes Di Meo as telling the investigative firm that he needs “to be very careful because I cannot be seen in public that I’m considering teaming up with a competitor of the company I’m investing in just to make, to throw out the current shareholder of Moby.”

According to Moby, Di Meo told the investigative firm that he controls €50 million in Moby bonds and Morgan Stanley owns €29 million, which stake Moby says Morgan Stanley seeks to conceal because it is a market maker in the securities. According to Moby, Di Meo told the investigative firm that Morgan Stanley sent an email to a notary public in London “saying that I effectively manage their position.” Di Meo is also quoted as telling the investigative firm that “there is a consortium basically between my investment company and Morgan Stanley, which has acquired a significant portion of the bonds of Moby.”

Moby claims that Di Meo has twice before attempted to seize control of the company through “economic piracy.” In 2019, Moby says, Di Meo “orchestrated the filing of a fraudulent involuntary bankruptcy petition” in Italy that was eventually dismissed “because Moby was not insolvent.” Further, Moby asserts, Di Meo scuttled the company’s attempt to sell vessels to DFDS, a Danish shipping company, in order to pay bank debt by “unlawfully” failing to ensure the vessels were free of mortgages. This led directly to a liquidity crisis and forced the company to initiate restructuring proceedings in June 2020, Moby alleges.

Again, Moby cites transcripts of Di Meo’s discussions with the investigative firm as evidence of his involvement in these maneuvers. For example, Moby quotes Di Meo as telling the investigative firm that he put existing equity “in a corner by filing a bankruptcy request two years ago, which has then determined the liquidity squeeze, the necessity to file for Chapter 11 and so on, in my request to partially govern the company.”

Di Meo thwarted subsequent negotiations, Moby says, by making proposals that “were illegal under Italian law and penalized Moby’s other creditors (e.g., the Lenders) and other stakeholders.” For example, Moby adds, “Di Meo proposed that Moby illegally misuse bank loans - ultimately guaranteed by the Italian government - that Moby could receive as part of Italy’s national emergency plan to mitigate the negative effects of the COVID-19 pandemic,” even though Di Meo knew “these government-guaranteed bank loans could not be used to pay creditors and could only be used for business operations and ongoing payroll.”