Vessel sold after red flags raised about foreign control
The American Fisheries Act was passed in 1998 to prohibit foreign control of U.S. fishing vessels, but a well-known member of the Alaska fleet and one of the state’s largest Japanese-owned processors may have been in violation of the law for the first seven years it was in effect.
Evidence presented in a case recently decided against Peter Pan Seafoods for violating crab processing limits included correspondence from the Maritime Administration, or MARAD, reflecting a high level of concern about the relationship between Peter Pan, fully owned by Nichiro Corp., and the 315-foot floating processor Steller Sea. (Nichiro has since merged with Maruha Corp.)
MARAD is responsible for ensuring vessel ownership complies with the citizen control requirements of the American Fisheries Act, or AFA, and issues endorsements to fish in U.S. waters.
In September 2007, MARAD notified Seven Seas Fishing Co., the charter holder for the Steller Sea, that it had become aware of a $5 million line of credit the company had with Peter Pan and Nichiro with a balance that had ballooned to $10.3 million.
MARAD told Seven Seas President Mark Weed that it was, “unable to provide an unqualified finding that Steller Seafoods Inc. remains eligible to document the vessel Steller Sea.”
Citing the advance of funds agreement signed in March 2002 provided to the agency by National Marine Fisheries Service investigators in 2007, MARAD wrote to Weed that, “the level of non-citizen participation reflected in the unsecured lending is evidence which suggests the possible existence of impermissible non-citizen control over the fishing industry vessel Steller Sea.”
MARAD allowed the Steller Sea to have a temporary fishing endorsement while it reviewed the advance of funds agreement. On June 9, 2008, MARAD notified Seven Seas that it would have to present a plan for restructuring its debt with Nichiro to continue to receive an unconditional fishing endorsement for the Steller Sea.
The correspondence with MARAD went no further.
The Steller Sea charter was allowed to expire a few months later, in September 2008, and the vessel was subsequently sold soon after to Icicle Seafoods Inc.
Icicle rechristened the vessel the Robert M. Thorstenson in honor of its late company founder in 2009, and the vessel now takes crab deliveries in St. Paul in addition to salmon and herring during the spring and summer.
Somewhat ironically, Icicle General Counsel Terry Leitzell was one of several members of the seafood industry who complained to law enforcement officers in 2000 about the relationship between Peter Pan and the Steller Sea, when the processor and vessel were not listed as affiliates under the AFA.
According to the court record in the case against Icicle settled Jan. 31 (see story here), Leitzell testified that he believed Icicle’s arrangement with Adak Fisheries signed in 2001 was permissible because he had not heard of an enforcement action against Peter Pan or Seven Seas after he’d tipped off investigators.
On Sept. 26, 2011, Peter Pan Seafoods was found to have committed 45 violations of the AFA from 2004 to 2005 for going 4.1 million pounds over its caps for red king crab and snow crab.
The company was fined $450,000 and settled with the National Oceanic and Atmospheric Administration General Counsel office for $525,000 a month later.
U.S. Coast Guard Administrative Law Judge Parlen McKenna did not agree with NOAA prosecutors’ proposed penalty of $4.3 million, but he did side with them on the issue of whether Peter Pan Seafoods was exercising an impermissible level of control over the Steller Sea.
McKenna also took note of the communications from MARAD in analyzing whether Peter Pan and Nichiro controlled the Steller Sea. By controlling the Steller Sea, McKenna determined all crab purchased from the vessel should count against Peter Pan’s processing limits for king and snow crab.
After the AFA took effect, processors covered by the law that had received lucrative pollock allocations were required to list all affiliated companies for the purposes of establishing their limitations in other fisheries such as crab.
Peter Pan never reported Seven Seas as an affiliated entity on any of its AFA applications.
Attorneys for Peter Pan objected to the MARAD evidence because it was from years beyond the period of violations from 2004 to 2005, but McKenna disagreed and found it damaging to Peter Pan’s arguments that it did not control the Steller Sea.
Peter Pan did not respond to a request for comment on either the settlement with NOAA or its relationship with the Steller Sea.
Owning the Sea
The Steller Sea was chartered by Seven Seas Fishing Co. from Cypress Leasing in San Francisco. That arrangement was signed in 2001 to comply with the American ownership requirements of the American Fisheries Act.
In the years leading up to then, Seven Seas had been 75 percent owned by Peter Pan Seafoods CEO Barry Collier, 15 percent by Peter Pan and 10 percent by Nichiro Corp.
The Steller Sea vessel had been owned since 1992 by First Hawaiian Bank and leased to Seven Seas. The bank was 45 percent owned by a French financial institution and wouldn’t qualify for American ownership under the AFA. Nor would Collier still be allowed to be the majority shareholder as an employee of Nichiro.
The arrangement entered into in 2001 was for Cypress Leasing to buy the Steller Sea from First Hawaiian Bank, then to lease the vessel to Seven Seas. To comply with the AFA, Collier sold his interest in Seven Seas to Gary Greenwood for $75,000. (Greenwood would later sell that stake to Weed for $78,000. Weed worked for Peter Pan for 22 years before buying the Seven Seas shares.)
In order for Cypress Leasing to agree to buy the Steller Sea, Peter Pan and Nichiro were required to guarantee the $175,000 per quarter lease payments from Seven Seas. Cypress obtained the loan to purchase the Steller Sea from Fuyo Bank in Japan, and internal documents generated during the process show Fuyo considered the arrangement to be effectively an extension of credit to Peter Pan and Nichiro.
MARAD approved this charter arrangement with Cypress in 2001, with the condition that the only financial support Peter Pan and Nichiro could supply to Seven Seas was the guarantee of charter lease payments.
Correspondence from MARAD cited in the court record shows that Seven Seas was notified May 29, 2001, that the agency must be notified if Peter Pan or Nichiro supplied any funding beyond the guarantee of fees in their processing agreement.
Seven Seas soon began borrowing money from Peter Pan in November 2001. In March 2002, Seven Seas and Peter Pan entered into a $5 million advance of funds agreement.
The companies did not notify MARAD of the agreement.
In 2003, revised American ownership regulations published by MARAD required that applicants for fishing endorsements must report any loans from foreign entities.
Again, Seven Seas did not notify MARAD of its loans from Peter Pan and Nichiro related to the Steller Sea vessel.
The advance of funds agreement with Peter Pan and Nichiro was virtually unrestricted, and Seven Seas was in default of the arrangement after the first season in 2002. Fund requests from Seven Seas were paid without question and Weed as president testified that nobody from Peter Pan or Nichiro ever expressed concern about the level of the debt or repayment.
In its internal reports on the deal in 2001, Cypress determined Seven Seas and Peter Pan were essentially the same entity and that the company operated as a “cost center” for Peter Pan with Seven Seas operated on a break-even basis.
Both before and after the AFA took effect in 2001, Peter Pan and Nichiro would provide a “true up” to Seven Seas at the end of each season to make its accounts balance. The “true up” payments ranged from a few hundred thousand dollars up to $3 million per year over the course of the relationship between Seven Seas and Peter Pan.
Peter Pan and Nichiro also supplied Weed and Seven Seas with $4.6 million in financing to purchase the fishing vessel AJ in 2003. Nichiro Corp. board minutes from 2002 presented at trial indicated an interest the company had for investing in a pollock vessel with quota.
Peter Pan executives notified Weed of the opportunity to purchase the AJ, and provided the financing on the condition that the vessel’s pollock allocation would be shifted to the Peter Pan shoreside cooperative for at least 15 years.
According to Peter Pan’s annual co-op reports, the AJ quota represents about 25 percent of its annual allocation, by far the most of any member of its co-op. In 2010, the AJ quota was about 2,500 metric tons, or 5.4 million pounds.
The court record shows that Seven Seas drew on its line of credit with Peter Pan to make its loan payments to Nichiro, meaning the company was basically paying itself for the AJ purchase.
At trial, Peter Pan CEO Collier said the balance of debt owed by Seven Seas to Nichiro is still about $4.5 million. The company no longer has any employees and Weed now works for Peter Pan subsidiary Golden Alaska Seafoods.
Andrew Jensen can be reached at [email protected].