Tulsa World: Attorney settles SEC charges

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Attorney settles SEC charges
He had been accused of cashing in SemGroup Energy shares using insider information.

By ROD WALTON World Staff Writer
Published: 4/29/2009 2:27 AM
Last Modified: 5/8/2009 11:19 AM

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

A Tulsa attorney has agreed to settle charges by the U.S. Securities and Exchange Commission that he used insider information to sell stock in SemGroup Energy Partners LP before the shares plunged last summer.

Matthew J. Browne, a 56-year-old oil and gas attorney who worked for the Frederic Dorwart law firm, was accused by the SEC of cashing in his SemGroup Energy stock for more than $80,000 based on knowledge gained from a banking client.

In its complaint, the SEC did not name Dorwart's firm or the bank involved. David Peavler, assistant director of the SEC's Fort Worth regional office, said in a telephone interview those entities were not identified because they were not part of any wrongdoing in the matter.

Reached by phone Tuesday, Dorwart's office would not comment on details in the federal complaint, but confirmed that Browne was terminated last year, an action that is noted in the SEC document.

Dorwart has served as Bank of Oklahoma's general counsel, according to reports.

Browne could not be reached for comment.

Timely selling

The SEC's civil complaint against Browne was filed Tuesday in Tulsa federal court. Browne was accused of selling all of his 5,200 units of SemGroup Energy, also known as SGLP, at $24.06 per unit

on July 14, 2008.

On that same day, the SEC alleged that Browne learned that SemGroup LP had defaulted on a $50 million margin call by "a longstanding law firm client who was a large SemGroup LP lender."

Three days later, the SGLP stock dropped by 50 percent to nearly $11 and then to $8.30 on July 18 as SemGroup LP's financial collapse seized public attention. The parent company filed for Chapter 11 bankruptcy protection on July 22.

"By liquidating his SGLP holdings on July 14, Browne avoided losses of $81,773," the complaint reads.

Without admitting or denying the SEC charges, Browne consented to pay the $81,773 he saved, plus prejudgment interest of $1,505.98 and a penalty of $81,773, according to a government news release.

The attorney also agreed to a permanent injunction against future insider violations and will be suspended for five years from appearing or practicing before the commission, the SEC document said.

In its court filing, the SEC presented its allegations in detail.

Browne's duties during his eight-year tenure at the law firm included providing legal advice to the unnamed bank about swaps and derivatives. On the morning of July 14, Browne's boss reportedly told him that the bank had problems with SemGroup because the company failed to pay the margin call, according to the federal complaint.

Browne allegedly sat in on conference calls discussing the bank's decision to close out the swap and derivative positions.

"After learning of the issues affecting SemGroup LP, between approximately 9:05 a.m. and 9:10 a.m. on July 14, Browne directed the liquidation of his SGLP holdings," the document alleged. "Between 9:22 a.m. and 11:15 a.m., SGLP sell orders were placed at three brokerage firms.

"By the close of trading on July 14, Browne had sold his entire SGLP position," according to the complaint.

Ongoing investigation

The SEC's Peavler said the agency has been looking into SGLP's stock activity since the announcement of SemGroup LP's financial problems.

Several spikes in trading volume can be seen in July 2008. In the week's leading up to its parent's collapse, the public SemGroup's trading volume typically was in the 20,000 to 50,000 units-per-day range, according to Bloomberg data. But on July 14, a Monday, SGLP's trading volume was listed at 103,558 units changing hands.

On July 17, as the parent company's woes became known, the volume spiked to 5.74 million units in one day. The daily trading rose to 9.87 million units on the following day, records show.

SemGroup Energy's units eventually fell as low as 87 cents and the company was delisted from the Nasdaq. SGLP, which later gained new third-party storage customers and received a two-year credit waiver from its senior banking group, has risen to nearly $5 per unit on the less regulated "pink sheets" electronic market.

The public SemGroup never filed for bankruptcy, although the parent company's Chapter 11 drained fee-based storage and terminaling revenues typically paid to SGLP, according to reports.

The government's scrutiny of investor activity in the company is not over, Peavler said.

"The SEC continues to investigate matters related to the trading of securities of the public SemGroup," he said.

The official said he could not address whether charges against others may be forthcoming.

Credit problems

While the SEC complaint against Browne did not specify the bank involved, SemGroup's lenders included Bank of America and Bank of Oklahoma, among many others. On July 14, SemGroup transferred its entire New York Mercantile Exchange account — estimated at $2.4 billion in margin calls — to the Barclays financial firm for coverage of its oil futures positions.

The transfer turned SemGroup's trading losses into realized accounting losses that sent creditors moving in, according to reports. Bank of America pulled its line of credit during the same period and now is SemGroup's agent bank in the bankruptcy case.

SemGroup's problems also had an impact on BOK Financial Corp., Bank of Oklahoma's parent.

Last year, BOK Financial was forced to revise a $43.7 million profit in its second quarter to a $1.2 million net loss due to an $87 million loan and energy derivative credit exposure to SemGroup, according to reports.

SemGroup co-founder and former CEO Tom Kivisto also had a lengthy lending relationship with BOk and served on its board of directors from 2006 until his removal in July 2008. In 2000, BOk underwrote a $70 million loan that helped Kivisto get SemGroup started, according to reports.

BOk spokesman Jesse Boudiette said he could not immediately comment on the Browne case.

A U.S. examiner's report released July 15 alleged that SemGroup collapsed partially because Kivisto led a risky and secretive trading strategy that depleted the company's cash flow. SemGroup also alleges that Kivisto owes his former employers about $300 million for trading losses through his wholly owned company, Westback Purchasing Co.

Kivisto's attorney contends his client's trading practices were similar to other energy firms, and blames the collapse on Bank of America's premature decision to withdraw its credit.

SemGroup spun off some of its oil, gas and asphalt terminal, pipeline and transportation assets to form SGLP and take it public in July 2007. A class-action lawsuit now in Tulsa federal court alleges that the public company did not disclose the parent company's problems to shareholders and that some stock transactions may have helped fund margin calls.

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 "Attorney settles SEC charges," which was published on 4/28/2009.

	Report Comment M. Lewinsky, The District (4/29/2009 8:42:54 AM) as previously mentioned... Of all the fraud, collapse, embezzlement, lying, cheating and bold-faced stealing by the likes of Maddoff, Sem Group, Wall Street and other banks (of course, not the unnamed bank "not" mentioned in the story) - The SEC decides to go after and make an example of a 59 year-old attorney in BFE Tulsa, Oklahoma over $80,000. - The lesson that I've learned from all of this - If you are going to out...go out big and take the whole thing down with you. In the end, you will probably get a nice job offer, you will get to keep you multi-million dollar bonuses and have your way with every woman who has a pulse all along the way.
	Report Comment QLC, (4/29/2009 9:16:13 AM) Doesn't sound like much of a penalty until you consider that he will be disbarred. You are right M, his problem was not going big enough. As in too big to fail.
	Report Comment O&Gtrader, ft. worth (4/29/2009 9:35:55 AM) The SemGroup Affair is sure turning out examples of low cunning.
	Report Comment Bedazzled, (4/29/2009 10:18:40 AM) I think most people know that Wall Street is corrupt but I don't think they realized just how much until this last year.
	Report Comment 57 Nomad, Tulsa (4/29/2009 11:02:16 AM) I don't pretend to understand all of the legal and financial language in the article but I do understand this wealthy guy gets no jail time for stealing. What if this story was about me??? 5-10 years, that's what. Maybe he can apply for a bailout for his losses. THIS AIN"T RIGHT PEOPLE! WE NEED EQUALITY IN PROSECUTING THESE CROOKS. IT'S LIKE WATCHING TV AND SAYING THIS COULD NEVER HAPPEN, ITS TV. THESE PEOPLE HAVE GOTTEN AWAY WITH THIS KIND OF STUFF FOR SO LONG NOW. Sorry....just needed to vent a little.
	Report Comment wk, (4/29/2009 11:56:14 AM) It's not stealing and it may not even be insider information - depending upon who knew what when. It's a joke that anyone was concerned about a trade that small. The focus should remain on Kivisto et al. What have they paid back? have they done any time for all of the losses they created? That's the reason the stock fell and everyone lost their tail. It didn't have anything to do with one lawyer on a small trade after talking to one of his clients.
	Report Comment hardball, (4/29/2009 12:39:36 PM) evidently the TW was unhappy about my "just another sleeze-bag Lawyer caught with his hand in the cookie jar" remark and deleted it. I just call them the way I see them!
	Report Comment h2650, Tulsa (4/29/2009 1:31:57 PM) Like the Tulsa World, amny of the readers miss the point. Sem fell because Goldman traded against Sem's book, that they obtained in another transaction, causing us all to pay $3.50 per gallon last summer. Teh World, like wk, wants to make Kivisto the scapegoat, rather than blame Wall Street. Brown screwed up, as did many others that shorted the stock July 14 and 15 based on inside information. Hopefully the SEC will finally do their job and catch some other fish, including Goldman
	Report Comment O&Gtrader, ft. worth (4/29/2009 4:13:47 PM) h2650: Are you also suggesting Goldman crushed the natural gas market, the jet fuel market, the copper market, the steel market as well as the oil market just "to get SemGroup"? They all got crushed at the same time. In fact, Goldman got crushed pretty hard as well in the credit markets. Their stock fell to $55.00/share from up in the $200.00/share range. In your mind, do you see Goldman trying to ruin everyone? Kivisto allegedly traded in a very dumb manner. If you are a good trader you never do anything that would allow any other trader to look at your book of trades..... but that happened to SemGroup. Freeh alleges Kivisto traded in such a manner and he got the probable results from so doing.
	Report Comment paladin, (4/29/2009 6:20:29 PM) Anyone know Kivisto's girlfriend? Now I know why D'novo's looks like it belongs in Dubai!
	Report Comment Hawktalk, (4/30/2009 7:43:59 AM) O&G: The "Goldman traded against Sem's book" story has now made it into urban legend. No amount of logic can correct the record. TK may have been guilty of colossal misjudgment but that had no connection to $3.50 gasoline.
	Report Comment tulsatops, (4/30/2009 10:40:19 PM) Martha Stewart went to prison for trades valued at $60,000.
	Report Comment O&Gtrader, ft. worth (5/1/2009 10:54:09 AM) tulsatops: Martha's problems were a little bigger than her trade amount in dollars: "Stewart was found guilty in March 2004 of conspiracy, obstruction of an agency proceeding, and making false statements to federal investigators and sentenced in July 2004 to serve a five month term in a federal correctional facility and a two year period of supervised release (to include five months of home confinement)." Until the former brain-trust of SemGroup gets questioned under oath, all we have to discuss here are reports of boneheaded trading skills and high velocity ego-stroking, neither of which is a crime.

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