The Securities and Exchange Commission has begun a "preliminary inquiry" into 1981-82 shipping transactions between Mobil Corp. and a London-based shipping company owned primarily by the son of Mobil's president.
The inquiry was initiated after Rep. John D. Dingell (D-Mich.) advised SEC Chairman John S. R. Shad on March 11 that information in the hands of the House subcommittee on oversight and investigations "raises questions whether the price paid for these ships was excessive and whether the transactions reflected Mobil's legitimate business interests."
The Wall Street Journal reported yesterday on shipping deals between Mobil, whose president is William P. Tavoulareas, and an international shipping company whose majority partner is Peter W. Tavoulareas, the son of Mobil's president.
The Journal said it found that Mobil purchased, or participated with partners in the purchase of ships from the son's company at prices "higher . . . than his the son's company had agreed to pay" for the same ships. But the Journal's article also said that these sales were made on "competitive market terms" and that Mobil had obtained independent appraisals of the ships' worth.
In a statement, Mobil observed that the paper "had reached the conclusion that the Mobil transactions described were prudent, attractive business deals for Mobil, involving neither violation of any law nor Mobil's own conflict of interest code."
The two page Mobil statement said the Journal "deserves congratulations for its extreme candor in acknowledging so obviously that an investigation by the Securities and Exchange Commission was instigated by The Wall Street Journal itself."
The reference apparently was to a sentence in the Journal article saying that the latest SEC inquiry "was evidently prompted by information supplied by Rep. Dingell's subcommittee staff, which itself had received inquiries from this newspaper."
In a March 30 reply to Dingell, Shad said, "The SEC enforcement staff has commenced a preliminary inquiry into the Mobil matter . . . and has met with Mobil's counsel and requested information concerning the inquiry."
Shad said the commission staff would determine whether the transactions should be disclosed to Mobil's shareholders and whether possible violations of securities laws may have occurred.
On March 31, one day after Shad replied to Dingell, Mobil mailed a letter to its 283,234 stockholders saying that "inaccurate and unsubstantiated charges could appear in certain newspapers" about "certain recent transactions involving Mobil and the company in which Mr. Tavoulareas's son has an interest," according to the Journal.
Mobil's vice president for public affairs, Herbert Schmertz, told The Journal that Mobil's marine department brought the Atlas transactions to the attention of Mobil's top management and that the transactions were discussed and approved by Mobil's executive committee. William Tavoulareas, a member of the committee, did not vote on the matter, Schmertz told The Journal.
Securities regulations require that under certain circumstances, business done with relatives of officials must be disclosed to shareholders. After July 1, all significant transactions with close relatives will have to be reported.
In amending the requirements, the SEC cited its investigation of 1974-79 shipping transactions involving Mobil and the company now controlled by Peter Tavoulareas.
Those transactions were reported in The Washington Post in November 1979. In November 1980, William Tavoulareas and his son, Peter, filed a lawsuit against The Post claiming the 1979 Post article was defamatory. Last summer, a six member jury awarded William Tavoulareas a $2.05 million judgment in the case, which is being contested by The Post.
A number of internal Mobil memoranda dealing with the 1981-82 shipping transactions involving Mobil, Peter Tavoulareas' companies and certain Saudi Arabian partners were sent anonymously to The Post in an envelope marked with Mobil's corporate logo. The Journal reported that it had also received documents about the transactions anonymously.
The Post has made requests to Mobil for comment and information about the transactions, and has thus far been turned down. Peter Tavoulareas, who was contacted in London for comment, also refused to discuss any of the matters with the Post.
In connection with the matters, the Post conducted interviews in Great Britain and the United States.
The interviews and documents on file at the Liberian consulate in New York City indicate that since early 1981, Mobil has been involved in several types of transactions with Atlas Maritime Co., the London-based shipping firm in which Peter Tavoulareas has a majority interest.
In mid-1981, Mobil, through a Saudi Arabian shipping firm in which it is a partner, acquired an interest in three chemical carrying tankers owned by Atlas. At the time of the sale, the three vessels were valued at $36 million each, or $10.3 million more per ship than Atlas's construction costs. According to the Journal, an independent appraiser for Mobil attributed the increased value to current construction costs and to the vessels' long term earning power.
In December of that same year when the financing for two of those ships was being arranged, Mobil initially participated in a banking syndicate that issued $20 million in second mortgages on them. Mobil later withdrew and was replaced by Irving Trust Co. of New York.
In early 1982, Mobil, through its Bluefield Insurance Co. subsidiary, purchased outright two vessels then under construction for Atlas at a Yugoslav shipyard. According to one memo, Mobil acquired Atlas's contracts for the ships and reimbursed Atlas for what it had already paid toward them.
Mobil's acquisition of the tonnage came at a time when the world shipping markets were entering a sharp recession as a result of the collapse of the energy and oil boom of the late 1970s. In May, 1982, shortly before the purchase of two vessels from Atlas, Mobil's planning and economics department noted that "no funds have been provided for vessel procurement in the Middle East and Marine Transportation program due to adequate coverage levels in all vessel size categories," according to one document.
Dingell supplied the SEC with a U.S. Maritime Administration analysis which the congressman said notes that "during the time period in which the Atlas transactions were occurring, ships were being sold for conversion into chemical carriers at between $4 million to $6 million and that the cost of conversion was about $2 million."
However, shipping company officials not connected with Mobil said there were factors that could have made these deals attractive, and potentially profitable, to Mobil. Two of the five vessels in which Mobil obtained an interest had assured long term charters, reportedly at good prices. The nine percent, 30-year loans provided by the Yugoslav shipyard was favorable financing at the time. And shipping companies such as Mobil sometimes buy ships in a depressed market in the expectation of reaping large profits later when prices improve.
Until the late 1970s, Atlas, which was formed in 1974, was primarily in the business of managing ships owned by other companies, including Mobil-owned ships chartered to Mobil's Saudia Arabian joint venture shipping partnerships.
But in early 1979, according to then Atlas partner Ares Emmanuel, Atlas signed contracts with a Rijeka, Yugoslavia, shipyard to buy nine new chemical carrying vessels. Delivery was to be staggered between 1981 and 1983. The shipyard provided below market financing covering 80 percent of the value of each ship.
Atlas's decision to expand into owning new chemical ships came when many in the industry expected that continuing energy shortages and the anticipated completion of huge new Saudi petrochemical plants would create a strong demand for specialized vessels equipped to handle chemicals.
The first ship, the 39,600-ton Atlas Challenger, was launched into the Adriatic on May 29, 1981, at a ceremony attended by Peter Tavoulareas, Emmanuel, and several senior Mobil executives, including Walter MacDonald, vice president for Middle East, and Walter Mink, president of Mobil Shipping and Transportation, according to the Atlas company newspaper.
On June 11, a Mobil internal position paper requested authority to invest $1.5 million of Mobil funds to acquire an interest in the Challenger and a second Atlas vessel, the Arabian Trader, due to be launched later.
Under the terms of the proposal, Mobil would participate through the Arabian International Maritime Co. (AIMCO), a partnership between Mobil (49 percent) and Saudi Arabian businessmen, including Mohamed bin Fahd, the son of King Fahd. AIMCO and Atlas would form a joint venture to share ownership of the vessels on a 50-50 basis.
As the world shipping market continued to decline, AIMCO's involvement assured that those two ships would have sustained earning power, through their hauling of Saudi petroleum products to Brazil under a five year charter agreement that AIMCO had worked out with Petrobas, the Brazilian state oil company.
"Overall, it is our judgment that the proposal is extremely attractive financially and has only limited risks which would seem acceptable in view of the indicated profitability," said the June 11 Mobil memo.
On June 23, 1981, another Mobil paper recommended a similar AIMCO-Atlas partnership to buy a third Atlas vessel. However, in this case, the future earning power of the vessel was more in doubt. This vessel was earmarked to go into a Norwegian-run pool of short term charters whose rates fluctuated with demand for vessels in world markets.
The Mobil memo said the vessel would have to earn $18 per cargo ton a month to "essentially break even." But it concluded that "there are significant benefits and there is only a marginal risk in participating in the project."
The Journal article reported yesterday that rates in this pool have dropped to $7 or $8 a ton. "Everyone who owns parcel tankers is fighting for cash flow," Dan Sharp, member of the London shipping company Panocean, told the Post recently.
Emmanuel, Peter Tavoulareas's partner at the time, confirmed that the value of the three ships was set at $36 million each at the time of their sale to the Atlas-AIMCO joint venture in which Mobil had an interest. That was $10.3 million more than the $25.7 million per ship that Atlas had agreed in 1979 to pay the Rijeka shipyard for them. He explained the increased in value as follows: "When someone is buying a ship you have to place a value on it depending on the world market at the time. There was a time when these ships were valued at even more--at $39- or $40 million."
On Dec. 14 and 15, 1981, Mobil, through its subsidiary, Mobil Tankers, S.A., joined a group of banks that was providing money to pay the unfinanced portion of the Challenger and the Trader, according to mortgage papers on file at the Liberian consulate in New York City. Three months later, Mobil withdrew from this lending group and was replaced by Irving Trust Co. of New York City.
Emmanuel said it was coincidental that Mobil was a member of the loan syndicate. "It wasn't a matter of needing money quickly," he said. "The loans are well secured and well-serviced."
In June, 1982, according to Emmanuel and to documents, Mobil purchased two still unfinished ships under construction in the Yugoslav yards by assuming Atlas's contract obligations and by reimbursing Atlas for its investment up to that point.
Peter Tavoulareas, who responded to questions from the Journal, was quoted by the newspaper as stating: "No one bailed me or Atlas out. We neither sought nor needed any bailout. Of the six ships we originally contracted for Aimco took a 50 percent interest in three. Since Mobil has a 49 percent ownership interest in AIMCO, their interest in the three ships amounted to 24 1/2 percent . . . That is hardly a bailout."
Emmanuel, who left Atlas earlier this year, was interviewed in London last month. Lawyers for Emmanuel and Tavoulareas have been attempting to work out a settlement of differences between the two partners.