Box Ships Inc (TEUFF)

[Pdaddy2]

McGuireWoods LLP
434 Fayetteville Street
Suite 2600
Raleigh, NC 27601

November 16, 2018

VIA EMAIL AND U.S. MAIL

James M. Turner
Sichenzia Ross Ference Kesner
1185 Avenue of the Americas
37th Floor
New York, NY 10036
[e-mail]


Re: Box Ships Inc. Board Misconduct and Information Demand

Dear Mr. Turner:
McGuireWoods LLP is counsel for Travis Tadlock, who purchased common shares of Box Ships Inc., a corporation organized under the laws of the Republic of the Marshall Islands in 2011 (the “Company”). Mr. Tadlock currently owns approximately 4,300,000 common shares. Mr. Tadlock has watched his stock value plummet as a direct result of the Company board’s self-dealing, mismanagement, and fraud over the past several years. The board, with its ringleader and CEO Michael Bodouroglou, has approved self-interested asset sales and has diluted the value of the Company’s stock by granting preferred shares to the board or their affiliated entities and engaging in questionable convertible note transactions.

You previously corresponded with my colleague, Rakesh Gopalan, after Mr. Tadlock received your March 29, 2018 letter regarding his ownership of stock. Mr. Gopalan promptly sent you a response letter in April 2018 and you engaged in dialogue regarding my client’s serious concerns about the actions of the Company and its board of directors, particularly Mr. Bodouroglou. Your prior responses to Mr. Tadlock regarding the Company’s performance and strategy going forward are unacceptable. The board has looted the Company, absconded with Company funds and assets, and pursued other conflict of interest business ventures, leaving the Company value to continue its death spiral.

Incredibly, when these prior discussions alerted you that the Company’s shareholders were sniffing out the board’s destruction of the Company, the board responded by terminating the voting rights of the common stock holders in April 2018. See Box Ships Form 6-K, dated April 2018. The timing of this termination is remarkable.

Mr. Tadlock first bought common stock with Box Ships in September 2016. That decision was based on a July 2016 letter to the shareholders from Mr. Bodouroglou, in his role as “Founder, Chairman and Chief Executive Officer.” In that letter, he stated that Box Ships was working through the cyclical downturn of the maritime shipping business. Mr. Bodouroglou ensured that Company was “doing the prudent thing” and “preserving cash liquidity.” See Box Ships Form 6-K, filed July 11, 2016. He then promised that the Company would be positioned and poised when the market rebounded. Specifically, Mr. Bodouroglou stated: “I can promise you we will be ready when the containership sector begins to rebound. If I didn’t think this was a battle we could win, I wouldn’t be in the fight. I am a significant Box Ships shareholder myself. Our interests are aligned.” Id. (emphasis added). Based on Mr. Bodouroglou’s promise and his representation that his interests were aligned with the other shareholders, Mr. Tadlock purchased common stock.

It has become clear that Mr. Bodouroglou did not align his interests with those of the Company shareholders. Instead, he has used the Company as his own personal bank account—looting the Company assets and coffers to fund his competing business ventures. For example, Mr. Bodouroglou has purchased Company stock and Company assets at fire sale prices (and at significant loss to the Company), which he then flipped for significant profit for his own benefit. In April 2011, Mr. Bodouroglou and his associates on the board caused the Company to purchase the Box Trader and Box Voyager from Paragon Shipping (where Mr. Bodouroglou also serves as the CEO), each for the $34,617,200 and 1,133,300 in Company stock. The next month, Mr. Bodouroglou and the board caused the Company to purchase the Maule for $79,285,000 from unaffiliated third party, CSAV (together, the Box Trader, Box Voyager, and Maule are the “Ships”).

In 2016, the Company listed the value of the Ships at over $143 million (Box Trader: $40.5MM, Box Voyager: $40.5MM, Maule: $62.4MM). See Box Ships Form 20-F at 48, filed April 27, 2016. Despite this, in November 2016, the board then caused the Company to sell the Ships for an aggregate sale of $1.50 to Allseas, a company privately owned by Mr. Bodouroglou. See Box Ships Form 6-K, filed November 30, 2016. While Allseas took on the remaining debt for the Ships, that debt was only $60,500,000 of the original $100,000,000 loan, meaning Allseas enjoyed instant equity of almost $83,000,000—equity that should have been realized by the Company and its shareholders. See id. at Exhibit 99.1. It appears that Allseas then quickly sold the Ships: the Maule was sold back to CSAV while the Box Trader and the Box Voyager were sold to Hayfin Capital Management and now operate as the GH Chinook and GH Leste, respectively. Mr. Bodouroglou has not disclosed the sums he made on these sale transactions for the benefit of his private company Allseas and at the detriment of the Company.

Mr. Bodouroglou did not stop at selling off Company assets at fire sale prices—he also blocked the Company’s efforts to obtain new ships and participate in the industry rebound. Through Allseas, he also usurped corporate opportunities by blocking intended asset purchases. Indeed three ships were scheduled to be delivered to the Company in or about 2016: the Box Express, Box Endeavor, and the Box Endurance. Those ships are now proudly listed as part of the Allseas fleet on its website: http://www.allseas.gr/fleet.php.

These conflict of interest transactions not only served to dilute the Company’s stock and divest the Company of substantial assets, but they fraudulently and unjustly enriched Mr. Bodouroglou at the expense of the Company and its shareholders. These self-dealing transactions breached the fiduciary duties that the board owes to the Company and shareholders and resulted in the conversion of Company funds. See Treadway Companies, Inc. v. Care Corp., 490 F. Supp. 668 (S.D.N.Y. 1980) (“Officers and directors of a corporation owe a fiduciary duty to all shareholders, minority and majority, and may not use their powers to further their own interests to the detriment of any of the shareholders.”); Cede & Co. v. Technicolor, 634 A.2d 345, 360, (Del. 1993); see also Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1239 (Del. 2012) (burden on controlling shareholder to establish “entire fairness” of transaction involving potential self-dealing).

Unsatisfied with looting the Company’s assets in 2016, the board then turned to fraudulent stock transactions in 2017, all while representing that the Company intended to remain active in the shipping industry. See Novak v. Kasaks, 216 F.3d 300 (S.D.N.Y. 2000) (noting that Section 10(b) of the Exchange Act “makes it unlawful ‘to use or employ, in connection with the purchase or sale of any security any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.’” (quoting 15 U.S.C. § 78j(b)).

For example, the board approved fraudulent stock and convertible note issuances through Neige International Inc., yet another company controlled by Mr. Bodouroglou. The board then sought to dilute the Company’s stock further by issuing convertible notes through third party investment firms like Magna Equities Investment Ltd., Kyros Investments Ltd., and undisclosed third parties. These transactions, which are rife with registration issues, have utterly destroyed the value of the Company’s stock. In an effort to cover their malfeasance, the board then approved multiple 50 to 1 reverse stock splits to manufacture the appearance of stock value. The board continues to play fast and loose to date with United States securities laws and the regulators resulting in numerous instances of securities fraud that have crippled the Company.

Mr. Tadlock once again demands that Mr. Bodouroglou and the rest of the board (or former board, as the case may be) sit down with him to answer questions about the self-interested and fraudulent transactions that have destroyed the Company and left its shareholders with valueless stock. We also demand access to the documents that the board has cited in an effort to justify its self-dealing and conflict of interest transactions. For example, in an effort to lend credence to the fire sale of Company assets, the Company’s Form 6-K filed on November 2016 states that the sale of the Ships “was approved by a Special Committee consisting of the Company’s four independent directors. The Special Committee determined that the proposed purchase price represents fair market value for the assets and liabilities transferred to the new entities, based on vessel valuations and an independent fairness opinion.” See Box Ships Form 6-K, filed Nov. 30, 2016. Neither the vessel valuations nor the independent fairness opinion have been provided to the Company’s shareholders. Nor has Mr. Bodouroglou identified the profits that Allseas made off of the ships transferred to Allseas. Mr. Tadlock demands copies of those documents and information in advance of the meeting.

Despite the shipping industry’s rebound, the board has done nothing to reposition the Company in the market. And now that the Company’s assets have been plundered and the stock value decimated, the board has ensured that there is nothing left of the Company to rebuild, despite Mr. Bodouroglou’s laughable representations even this year that the Company would reemerge in the market. Indeed the Company has purportedly deregistered and terminated its reporting obligations with the SEC, further indicating the disastrous, yet completely avoidable, result of Mr. Bodouroglou’s self-interested antics.


Sincerely,



Elizabeth Timmermans