Tanker owner Overseas Shipholding Group went bankrupt in 2012 after disclosing that it had $500 million in previously unreported tax liabilities. On Tuesday, OSG announced that it has settled charges with the Securities and Exchange Commission for failing to recognize these liabilities in its financial statements. The settlement brings the SEC investigation to a close and resolves the final claim in OSG’s bankruptcy proceedings.
Subject to bankruptcy court approval, OSG will pay a $5 million civil penalty. OSG neither admits nor denies the SEC's charges that it violated several securities laws, and the agreement does not require any further changes to OSG's financial statements.
The tax liabilities arose through a provision in OSG's credit agreements from 2000 through mid-2012, which made two foreign subsidiaries "jointly and severally" liable for OSG's own debt obligations. This created an income tax liability, which OSG failed to recognize in its financial statements, despite advice and notification from outside counsel and from its banks.
OSG will pay $5 million to settle the charges. Former CFO Myles R. Itkin settled simultaneously, and will pay a penalty of $75,000.
"Where public companies derive economic benefits from their offshore earnings, it is critical that those responsible for the company’s accounting and financial reporting understand the federal income tax consequences triggered from these benefits,” said Gerald Hodgkins, associate director of the SEC’s Enforcement Division.
The agreement with the SEC also resolves the last remaining claim in OSG's bankruptcy case. The firm plans to file a motion requesting bankruptcy court approval of the settlement and an order closing out the case at the same time.
“OSG is committed to operating its business with the utmost integrity and transparency and in compliance with all applicable laws and regulations,” said Sam Norton, OSG’s president and CEO. “We are pleased to have reached an agreement to resolve this investigation and to be in a position to close the bankruptcy case.”
Bankruptcy was far from the end of the road for OSG. It is performing well thanks to a successful restructuring initiative, and it returned to the NYSE's "Big Board" in mid-2016. The firm operates a U.S.-flag fleet of 24 vessels, including 14 tankers, eight clean product ATBs and two lightering ATBs. It has recently spun off its international division, International Seaways, which owns and operates one of the largest crude and product tanker fleets in the world.