A $2 billion “False Claims Act” lawsuit alleging “figurehead fraud” against the Canadian seafood giant Cooke Inc. of St. John, New Brunswick, was unsealed in April in the United States District Court for the Southern District of New York in Manhattan.

The suit alleges Cooke Inc., Omega Protein, Alpha VesselCo. Holdings, Inc., and others have been violating the American Fisheries Act (AFA) (1998) and Jones Act (1920), which allows only U.S. citizens to fish in U.S. waters.

The suit stems from an approximately $500 million purchase of Omega Protein of Reedville, Va., and all its assets in 2017 to Cooke Inc. The 57-page suit was filed by the New York law firm of Holwell, Shuster & Goldberg LLO (HS&G). Attorney Brendon DeMay of HS&G is requesting a jury trial.

The plaintiffs in the suit are Chris Manthey and W. Benson Chiles. Manthey is a professional investigator and researcher. In 1993, Manthey co-founded Back Track Report, a private investigation firm in New York focused on pre-deal background research on corporate executives.

Chiles is a consultant who has worked with environmental and conservation groups on issues relating to commercial and recreational fishing in U. S. waters. Chiles occasionally receives non-public information regarding corporations operating in the U. S. commercial fishing industry, including defendants Cooke Inc. and Omega, the suit states.

 The plaintiffs say they are suing on behalf of the United States government, including the Maritime Administration (MARAD) of the United States Department of Transportation and the United States Coast Guard. MARAD determines whether applicants satisfy AFA vessel citizenship requirements.

Law Suit

As of Sept. 30, 2017, Omega Protein Inc. was a domestic, publicly traded company that owned a fleet of 37 commercial fishing vessels, 27 spotter aircraft to spot schools of fish, three fish-processing operations, and Omega Shipyard in Moss Point, Miss., where the companies’ vessels were built and repaired.   

The suit alleges that since 2017, when Cooke Inc. purchased Omega, the firm has been violating the AFA/Jones Act by having “de facto control” over menhaden vessels working in the Chesapeake Bay, the Atlantic Ocean, and the Gulf of Mexico. Under the AFA/Jones Act, foreign citizens, like Cooke Inc., may not have control over vessels engaged in commercial fishing in United States waters.

The suit alleges that “as a result of a fraudulent scheme, defendants have illegally harvested from United States waters many millions of dollars worth of (menhaden) fish to which they are not entitled.”

The suit states that Cooke, Inc., a privately held Canadian firm controlled and beneficially owned by a single family, acquired Omega and its subsidies and assets, including all of Omega’s vessels. The vessels' homeports are Reedville, Va., on Chesapeake Bay, and Abbeville and Moss Point, Mississippi, on the Gulf of Mexico.

The suit alleges that Cooke Inc. was involved in a “figurehead fraud scheme,” creating a shell corporation to avoid violating the AFA citizenship requirement. It also alleges that “instead of simply acquiring Omega and owning its vessels (Cooke) restructured the entire acquisition to create an illusion of compliance with the AFA citizenship requirement.”

It further states that Omega transferred the Omega Vessels to a new subsidiary, with 20% belonging to Omega (now owned by Cooke Inc.) and 80% to a “Delaware shell” owned by Seth Dunlop, a U.S. citizen, nephew of Cooke CEO Glenn Cooke. The suit states Dunlop was “just a figurehead (and that) Cooke Inc. and Omega retained control.”

Aware early on of AFA issues

The suit alleges that during negotiations of the agreement on the sale of Omega, Cooke agreed to pay a $20 million payment if the acquisition failed to close because they could not obtain MARAD approval, recognizing the citizenship issue.

The suit alleges that “no later than June 2017, Cooke identified a potentially prohibitive obstacle to the acquisition (concerning) the AFA citizenship requirement. Cooke and Omega recognized that the acquisition as originally conceived . . . would render the Omega fishing fleet ineligible to operate in the U.S. commercial fisheries . . .,”

The suit further alleges that “conversely, neither Cooke nor Omega were willing to entertain an arrangement that complied with the AFA prohibition on foreign control. For example, neither Cooke nor Omega was willing to sell the Omega vessels to a bona fide third party in an arms-length transaction and purchase fish from that independent company at an arms-length transaction . . . and both companies viewed the Omega vessels and Omega’s tight control over its vertically integrated menhaden harvesting and processing operations, as major drivers of Omega’s value and as critical to its market dominance,” it alleges.

“Accordingly defendants entered into an agreement . . . to create a post acquisition ownership structure for the Omega vessels . . . while ensuring that Cooke and Omega would retain control via a figurehead,” it alleges.

Attorney’s comment

Attorney DeMay said in a letter announcing that the suit was unsealed, "Cooke’s scheme is illegal. Non-citizens Cooke and Omega are improperly exercising control over the vessels in a shameful violation of AFA.”

The letter alleges that Cooke Inc. concealed facts to MARAD, “flagrantly breaching” the AFA anti-fraud rule, which requires, under penalty of perjury, vessel owners to disclose to MARAD “all relevant facts regarding vessel ownership and control” and which imposes fines of up to $154,000 per vessel per day for concealing material facts or making false representations.

The suit calls for the government to revoke the fishery endorsement of all vessels whose owners do not comply with the AFA citizenship rule. 

DeMay wrote that prosecuting Cooke and its “conspirators to the fullest extent of the law, and fining them billions of dollars, will serve as an important deterrent to future foreign prospectors and establish a key precedent for law enforcement.”

Response from defendant Ocean Harvesters

Vice President of public affairs of Ocean Harvesters Ben Landry said, "Ocean Harvesters believes the recently filed lawsuit is without merit and will vigorously defend against all allegations of wrongdoing. 

“As this case proceeds, we look forward to establishing that accusations of failure to disclose appropriate information are inaccurate. Ocean Harvesters is committed to compliance with all applicable laws and to continuing to conduct responsible, sustainable fishing operations along the Atlantic coast and in the Gulf of Mexico,” said Landry.