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The Casey Case. The ship-buying tactics of Niarchos and brother-in-law Onassis were blown out into the open when Congress started a stem-to-stern investigation of the immense profits that were made on war surplus ship sales. A congressional committee found that Massachusetts' former Representative Joseph E. Casey had joined the late, onetime Secretary of State Edward R. Stettinius Jr. and others in 1947 in what seemed like a surefire venture. Tankers were then in such demand that it was possible to make a down payment on a war surplus T2, get a charter from an oil company and then sell either the charter or the ship for a fancy profit.
Casey and his associates bought five T25 from the Maritime Commission, which stipulated that they remain in American hands. The Casey syndicate chartered and later sold the ships to Niarchos' U.S. companies. With Niarchos' help, according to Justice Department records, Casey and colleagues in two years avoided paying $1.4 million in U.S. taxes while the ships were under the Panamanian flag, cleared $3.2 million on an initial investment of $101,000.
As a result of the investigation, Casey was indicted, but he later won immunity from prosecution by testifying before a grand jury. In 1953 the Justice Department also started moving against Niarchos, Onassis and other independents. In civil actions against nine of his companies, Niarchos was accused of misrepresenting them as American-owned corporations. Niarchos (who was then in London) and some 20 associates were also indicted on criminal charges; 17 U.S. staffers and consultants were arrested; 19 of his ships were seized. Niarchos argued that the Government's charges were "technical allegations," said that the Maritime Commission had not only been familiar with his setup all along but, in all his direct dealings with the Government, had welcomed the chance to sell surplus ships for U.S.-flag operation.
Rather than tie up his ships by a prolonged court battle, Niarchos settled the case out of court, paid an initial fine of $4,000,000. To recover 13 of his ships, he later made a deal with the Government that gave U.S. shipyards a needed boost. In return for permission to transfer the repossessed ships to foreign flags, Niarchos paid an additional $8,579,500 in penalties and agreed to build and register three supertankers (two of 32,650 tons and one 46,000-tonner) in the U.S.
The Bafzanakia. Thus the Government wound up by slapping Niarchos' wrist. His fines were greatly reduced, in effect, since the 13 ships transferred to foreign registry automatically gained $5,000,000 in value as a result of lower operating costs under flags of convenience. Though it will cost Niarchos up to $325 a ton to build his ships in the U.S., v. $200 in jampacked Japanese yards, he will get far better engineering and faster delivery (by late 1957). As a result of the suits, he also placed 75% of the stock in three of his U.S. companies in trust for his American sons—Philip, 4, and Spyros Nicholas, 14 months.