Tulsa World: Kivisto lawyer says report slanted

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Kivisto lawyer says report slanted
The Freeh review sought a scapegoat, he contends.

Tom Kivisto's trading activities weren't the cause of SemGroup's collapse, his attorney said Monday. Tom Gilbert / Tulsa World file

By ROD WALTON World Staff Writer
Published: 4/28/2009 2:25 AM
Last Modified: 4/28/2009 3:32 AM

Complete coverage: Read all the stories and documents related to the SemGroup collapse.

The U.S. examiner looking into SemGroup's bankruptcy overlooked, ignored or simply didn't understand oil trading in a way that might have balanced his April 15 report that partially blames Tom Kivisto, who co-founded SemGroup, for the company's collapse, Kivisto's Tulsa attorney said Monday.

The attorney, John Tucker, alleged that the report — the product of a four-month review by former FBI Director Louis Freeh's investigation firm — discarded industry insight and a sense of fairness in favor of finding a scapegoat for SemGroup's woes. Kivisto is accused of leading a risky and secretive oil futures trading strategy that bankrupted the company he helped form in 2000.

Tucker contended that the collapse came from the loss of bank credit, not from Kivisto's trading.

He also defended his client's decision not to talk to the investigators. Kivisto was denied access to documents that the U.S. examiner allowed other companies to see, Tucker alleged.

"Why on earth would he talk to someone like that?" Tucker said in an interview with the Tulsa World.

More than anything, he added, the Freeh document shows a lack of knowledge about a complex subject. He alleged that the report missed details on numerous kinds of futures trades.

"It's

a pretty inept report," he said. "They've got to find a scapegoat."

The Freeh report alleges that nearly $3 billion in margin calls on failed oil futures positions paved the way to SemGroup's Chapter 11 filing. Tucker, however, argues in a response released Monday that the fault lies with Bank of America's premature decision to pull its line of credit. Bank of America remains SemGroup's agent bank in the bankruptcy case.

"If BofA, the lead member of SemGroup's banking facility, had not precipitously pulled SemGroup's credit line without notice or warning, then SemGroup would have made larger profits in the second half of 2008 thereby saving countless jobs," Tucker's response reads.

Reports allege that SemGroup stuck to an imbalanced "short position" on the direction of oil prices even as futures rose to $147 per barrel in July 2008. Some of its defenders have theorized that the market pullback to $100 and less eventually would have paid off for SemGroup.

In fact, Tucker alleged that Chevron Corp. and others use a similar trading strategy. Chevron also experienced trading losses in the first half of 2008, he wrote.

"Chevron, unlike SemGroup, did not have its credit pulled at a crucial point and was therefore able to weather the 'unprecedented' storm of volatility and price increases," Tucker's response reads.

Reports say SemGroup's lack of liquidity forced it to transfer its New York Mercantile Exchange trading book for coverage by the Barclays financial firm in the week before it filed for bankruptcy. Records show that transfer forced the company to take the running account and convert it to at least $2.4 billion in realized losses.

Tucker's response says: "SemGroup's losses on its trading book were mark-to-market (tied to the ever-changing value of commodities) until BofA pulled SemGroup's credit and it was forced to novate the book to Barclays and therefore recognize the losses. The facts will show that Barclay's purchase was extremely profitable."

Tucker explained Monday that "novate the book" meant that Barclays's name was substituted for SemGroup's on every contract. He said SemGroup paid more than $100 million to Barclay's as insurance because Barclays was then responsible for the positions.

Tucker said the Freeh report also ignored a May 2007 report by a Houston lawyer, James Bowen, that analyzed SemGroup's risk management and trading checks and balances, although the report is included in bankruptcy court documents. The report said it was commissioned by Bank of America.

Bowen wrote, "SemGroup has excellent documentation of policies to ensure that all transactions are captured, booked and reconciled."

Tucker said that until SemGroup transferred its trading book to Barclays and had to recognize its losses, it was not in violation of its loan covenants.

Tucker believes that another inquiry should focus on the role of hedge fund traders such as Goldman Sachs' commodities trading wing at J. Aron & Co. Forbes magazine published a story this year that focused on the theory that other traders had insider knowledge of SemGroup's short positions and made billions of dollars taking the other side to run up oil prices.

Tucker also called it "inappropriate" and "irrelevant" that the U.S. examiner's report included allegations of an "intimate relationship" between Kivisto and a SemGroup trader, Mia Oven. It also alleged that Kivisto hired inexperienced traders such as Oven and Jim Coen in his effort to control the trading strategy and keep it secret.

Oven and Coen may have been inexperienced at first, but they proved to be valuable employees who benefited the company, Tucker contended. The examiner's report said Oven and Coen received $1.5 million and $2 million in bonuses, respectively, in 2007.

Tucker said the decision to train them as traders followed SemGroup's practice of promoting from within.

The examiner's report says that Kivisto and two other former SemGroup executives — former Chief Financial Officer Greg Wallace, who helped found the company, and former Treasurer Brent Cooper — refused to talk to investigators. The three are accused of working together to mislead creditors, clients and even other employees.

Tucker said he believes that they had no choice but to stay silent considering that, in their view, the report seems to "cherry-pick" facts to fit the theory that his client ran SemGroup into the ground.

Freeh's report focuses on failed short positions in the Nymex oil futures trades but ignores more profitable long positions in over-the-counter transactions that did not require margin calls, Tucker said. He also complained that the report throws in seemingly damning e-mails about trading from ConAgra and Prudential Bache without a proper context that would show SemGroup's trading in a more positive light.

SemGroup also has prevented Kivisto from gaining access to similar documents and even retrieving personal items, Tucker added.

"It's very difficult to answer detailed questions based on memory alone," he said. "It's just not fair."

Kivisto was placed on leave from SemGroup last summer and later fired.

Tucker filed an objection to Freeh's report shortly before it was released through the bankruptcy court in Delaware.

SemGroup executives announced this year that they are drafting a plan that would take at least part of the company out of bankruptcy. The original bankruptcy court filing called for the sale of all assets.

A New York investor, John Catsimatidis, has promised to offer another plan that would preserve much of the company and keep it in Tulsa.

No details on either plan have emerged.

Rod Walton 581-8457
rod.walton@tulsaworld.com By ROD WALTON World Staff Writer

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Some reader comments for this story were copied from "Kivisto's attorney disputes findings of SemGroup examiner's report," which was published on 4/27/2009.

	Report Comment Arbythree, Tulsa (4/27/2009 2:48:56 PM) Kivisto's attorney disputes findings? WELL DUH!! What is he supposed to say...You caught us??!!
	Report Comment Hawktalk, (4/27/2009 3:35:50 PM) If only the Kuwaitis had stepped forward...
	Report Comment VoteNo, Tulsa (4/27/2009 3:37:09 PM) Exactly Arbythree! Like Tommy K or his lawyer are going to look at devastating evidence and say, "Busted!" He'll probably get off with no conseqences. Ive said it before and I'll say it again - the only folks winning in this deal are the attorneys. They're gettin' paid no matter what. I should have majored in some fluff as an undergrad and gone to law school instead of busting my butt in engineering school.
	Report Comment justiceawaits, Claremore (4/28/2009 6:18:52 AM) BS smokescreen.
	Report Comment chase, rogers county (4/28/2009 7:15:07 AM) He was in charge, whose fault was it?Old Tom should have to give up any monies he profitted while in charge.
	Report Comment O&Gtrader, ft. worth (4/28/2009 8:31:58 AM) I had a dream last night. In it, I scared myself. In the dream I was long some oil futures yesterday in a day trade and at the end of the day I had a mark-to-market loss. Clearly it was the market's fault, not mine. The market was exerting magical powers that were keeping my fingers from pressing the "sell" button via my online trading account. I am smarter than the market. I am a legend. I like Porfirio Salinas art. I think will mortgage my house to refund my position in the market if it gets worse. I never take a loss. Losses are for losers. That is why they are called "losses". See? "Loser/losses...losses/loser". They say Warren Buffett will take a loss and get out of a trade if he is losing money more money than anticipated. I didn't know Warren Buffett was a "loser". I'm smarter than Warren Buffett. I never take a loss.
	Report Comment Hawktalk, (4/28/2009 8:59:05 AM) O & G: Yes but can you dance to it?
	Report Comment Hooter, (4/28/2009 9:38:39 AM) Let's see. It's BoA's fault, right? So what was their motive? Banks aren't accused often of trying to make their loan clients go broke. They are, however, known to cut their losses. Got to blame someone. BoA, Goldman Sachs, Bush, the media, Obama.....just blame someone else. Here's an idea: Blame Hillary. It's usually her fault around here.
	Report Comment O&Gtrader, ft. worth (4/28/2009 10:27:14 AM) Hawktalk: I couldn't dance to that! Meanwhile, Here's what Chevron said about their option trading venture: "The company ended its options program last October, citing their unpredictable effect on financial results." Chevron has some very bright people working at the highest executive levels. And their market cap today is $131 billion. (What is SemGroup's?) Chevron didn't get that big by doing boneheaded oil trading. I think the "whine flu" has affected some analytical Tulsans.
	Report Comment Hawktalk, (4/28/2009 10:50:07 AM) O&G: Pardon my flip remark. I don't recall what the figure was because I worked in the Materials group, far removed from the perpetually tanned administrators over in the tall building. It did seem that every deal we did carried some kind of hedge but no one on my level could say if this provided downside protection or limited profitability. My real anger (aside from being fired unceremoniously) is reserved for managers who encouraged all of us to get in on the ground floor via SGLP stock, the proceeds of which we now know were looted. TK, Fatboy and Mr. Foxx and perhaps several other people associated with this fiasco, including current SGLP management who have worked both sides of the table should go to jail for about five years. They all had to know the stock offering was a fraud.
	Report Comment hardball, (4/28/2009 12:24:20 PM) Kivisto's attorney disputes findings? I guess we're all supposed to believe Kivisto-the-Krook was just an innocent choir boy? Never knew what was going on? LMAO!
	Report Comment LocalBoy, B.A. (4/28/2009 2:24:14 PM) John Gotti's lawyers protested what was said about him, too. Just a nice old family man being railroaded.
	Report Comment O&Gtrader, ft. worth (4/29/2009 9:33:38 AM) Hawktalk: Being in the trading business is like being a sports coach. You frequently get fired and move to a similar job with another "team" doing the exact same job. There is an old "truism" in the oil trading business that has offered transient oil traders much comfort: "There are two kinds of oil traders: " Those who have been fired and those who are going to be."
	Report Comment JollyRoger, Sapulpa (4/29/2009 9:51:04 AM) Hawktalk, would you have wanted to have had a ceremony when you got fired? :-)
	Report Comment JollyRoger, Sapulpa (4/29/2009 9:56:52 AM) Isn't it interesting that, at the end of the day, Materials is put back together and being sold in decent sized pieces to good companies....exactly what all clear-headed people thought should have been done in Aug of last year (and would have saved a lot of jobs). The real shame of this whole deal, other than the fraud that was perpetrated by TK, is the illusion of grandure that was held by management. It's one thing to lie to your employees and tell them that Materials was worth a billion dollars, but when the rubber hits the road, you look at it realistically and maximize MARKET value....not try to get a value that you KNOW is not there. Based on what was paid for Materials and what was invested....this was an unmitigated disaster and a great example of how to ruin a company
	Report Comment O&Gtrader, ft. worth (4/29/2009 1:10:40 PM) I see Mr. Freeh has issued a statement about TK's lawyer's comments.
	Report Comment black gold, (4/30/2009 1:51:34 PM) Not sure Materials is being put back together as much as what is left is being salvaged. The tanks are gone, part of a possibly fraudulent deal to capitalize more assests for SGLP's second stock release in 08. And residual fuels is also gone, goodbye to bad rubbish at the management level of that bunch. It is a shame that the judge didn't consider the very good offer that was made for Materials way back in August of 08. But then I guess it made more sense to wait 8 months, let SGLP strip the remaining assets it wanted from Materials, and then sell it off for pennies on the dollar. THe $10-20 million they may realize from the sale of those two entities now is a far cry from the offer on the table in August. But then, Alix partners, et. al needed to take their $50+ million for their valuable expertise, you know, the expertise that published employees bank account numbers and led to fraudulent withdrawls from past and present employees bank accounts. And God forbid the judge actually approved something in August that would have been in the best interests of all the small creditors out there. Justice was truely blind in this whole debacle.

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