Bankruptcy judge approves SemGroup investigator
BY ROD WALTON World Staff Writer
Wednesday, September 10, 2008
9/10/08 at 5:21 PM
A Department of Justice examiner will investigate SemGroup LP’s oil trading practices and accusations that some intra-company transactions quietly funded those failed hedging efforts, a judge ruled Wednesday in Wilmington, Del.
U.S. Bankruptcy Judge Brendan L. Shannon approved the U.S. Trustee’s call for an examiner. Some creditors and others have alleged that SemGroup co-founder and former CEO Tom Kivisto and others engaged in “risky” and “unauthorized” futures trades.
Tulsa-based SemGroup did not object to the examiner’s request.
“The appointment of an examiner in a case like this is to be expected,” company spokesman Lance Ignon said.
SemGroup LP filed for Chapter 11 bankruptcy protection July 22 after revealing that the company owed about $2.4 billion on those futures trades. SemGroup reportedly was forced to use much of its already constricted cash flow to meet growing margin calls on the New York Mercantile Exchange.
The energy trading, storage and transportation company also owes at least $2.5 billion to a long list of banks, hedge funds and other creditors, according to reports, as well as an estimated $1 billion to producers for oil or asphalt bought on credit before the bankruptcy.
“Appointment of an examiner to investigate these matters will shed light on these issues and produce a report that informs the court and the public whether culpable conduct occurred,” U.S. Trustee Roberta A. DeAngelis wrote in her Aug. 12 motion.
Bank of America, one of SemGroup’s key lenders and the agent bank for a $250 million “debtor in possession” loan sought by the company, previously gave its support for an examiner’s probe into the trading and insider transactions. The bank, however, wanted the investigation limited to a specific scope, 30-day timeline and $100,000 budget.
The insider transactions include several acquisitions, totaling more than $500 million, made by public subsidiary SemGroup Energy Partners LP in the past year. The public company bought several pieces of parent SemGroup’s private pipeline and asphalt operations, and the parent company allegedly used the proceeds to meet margin calls on the failing oil futures trades, according to court documents.
SemGroup LP grew to one of the nation’s biggest private companies in its meteoric eight-year history. The company employed 400 people in Tulsa and nearly 2,000 nationwide before laying off 230 last month.