A recently unsealed federal lawsuit alleges that the lone menhaden reduction fishery in the Chesapeake Bay broke federal law by creating a shell company to cover up its foreign ownership, routing profits to a Canadian company instead of keeping them in Virginia.
This story was reported and written by our media partner the Virginia Mercury
Benson Chiles and Chris Manthey, two private investigators involved in environmental conservation efforts, brought forward the lawsuit in the U.S. District Court for the Southern District of New York in 2021 against Omega Protein under the False Claims Act, saying the company violated the Jones Act and American Fisheries Act by not disclosing that its owners are family.
The lawsuit is the latest in a long series of events around the menhaden reduction fishery that Omega Protein says creates economic activity for the state, a claim countered by fish conservationists who say its practices lead to Bay ecosystem harms. Meanwhile, Virginia lawmakers are considering scientific reports to determine what is actually happening.
“Everyone knows you cannot lie to the federal government,” said Brendon DeMay, an attorney for the two plaintiffs. “You just can’t do it. It’s pure fraud.”
Ocean Harvesters, the subsidiary more specifically accused of wrongdoing, said in a statement the lawsuit is “without merit” and will be “vigorously” defended.
“Throughout this period, American citizens have owned more than 75% of the vessel entities as is consistent with citizenship requirements under federal law,” the statement reads. “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.”
Under the False Claims Act, the case went under seal to let the U.S. Department of Justice conduct its investigation, which can either result in a recommendation to dismiss the case or take it over, or to let the case proceed on its own. In this instance, the DOJ is letting the case proceed on its own.
The lawsuit alleges that Canadian-based Cooke Inc. acquired Reedville, Virginia-based Omega Protein in 2017 with financial backing from outside investors. As part of the pitches for funding, Cooke assured investors the company would create a subsidiary called Alpha Vessels, which operates under the designated business name Ocean Harvesters, to run the ships Omega Protein buys the menhaden catches from. Alpha Vessels would be run by Seth Dunlop, investors were told, a U.S. citizen and nephew of Cooke Inc. CEO and Canadian citizen Glenn Cooke.
That U.S.-based ownership of Alpha Vessel was needed because under the Jones Act, certain vessels sailing within U.S. waters must be owned and operated by U.S. citizens. The Jones Act was enacted to build up the American maritime industry. Under the American Fisheries Act, the U.S. citizen ownership requirement under the Jones Act must be met.
But Alpha Vessels didn’t disclose the alleged ultimate control leading back to the foreign-based Cooke company to the Maritime Administration (MARAD), under the U.S. Department of Transportation, or U.S. Coast Guard, both of which are responsible for enforcing the federal laws, the lawsuit states. After initially failing to be forthright with that information, the company renewed its approval year after year through 2021 via an online portal that prevented any verification of the ownership structure being satisfied by MARAD, the lawsuit states.
Breaking the federal laws would mean that a Virginia-based company is not reaping the profits of a fishery that primarily exists within the Chesapeake Bay and off the coastal waters of Virginia, and are instead going to a Canadian-based company.
“Why do they go to Canada?” DeMay said.
According to an industry insider who wished to remain anonymous because of the pending litigation, familial connections between companies is a common occurrence. It’s a structure used for the bait fisheries operating in the crabbing industry in the Bering Sea off of Alaska, and scallop fishers, according to the source..
“That’s very typical,” the source said.
The lawsuit is the latest from the two plaintiffs who have targeted Omega Protein before: in 2010 Chiles and Manthey sued the company for PCB contamination in fish oil supplements, resulting in a lawsuit settlement, the source noted.
“I’m not surprised a pair of individuals that have filed suit and acted in the regulatory regime in the menhaden fishery have taken this up,” said the source. “This industry just gets really attacked.”
Now that the case is unsealed, Omega Protein will have a chance to file a response to the complaint in court, as the proceedings continue and could head toward a trial as the lawsuit requests. Based on the penalties that are assessed to violators each day for non-compliance of the federal laws, the lawsuit says Omega Protein should be fined in excess of $2 billion.
