Risk Management

SemGroup Facing Chapter 11 Fraud Probe

The energy trader is being accused of improper trading that led to a liquidity crisis.
Alan RappeportAugust 13, 2008

The U.S. Justice Department is seeking to investigate claims of fraudulent trading that may have resulted in last month’s financial collapse of SemGroup, a Tulsa, Okla.-based energy trader, Reuters reported.

RZB Finance LLC, SemGroup’s lender, said in court documents that the Blackstone Group, which provided advice on the energy trader’s restructuring, admitted that improper trading was the cause of the collapse, according to Reuters.

Federal investigators are already following up on charges that SemGroup Energy Partners LP, the company’s publicly traded subsidiary, failed to disclose to investors that its parent company was facing liquidity problems last month.

“The dearth of information available regarding the trading strategy and its impact upon the value of the debtor’s businesses has caused significant unrest and concern among the debtor’s customers, suppliers, lenders and investors,” Roberta DeAngelis, representing the trustee program, reportedly wrote in a court document.

SemGroup filed for bankruptcy on July 22 after suffering more than $3.2 billion in losses on energy futures and derivatives trades, according the news service. The probe is being pursued by the U.S. Trustee Program, a division of the DOJ set up to monitor bankruptcy proceedings.

“If indeed there is a probe, we would fully cooperate with it,” said Lance Ignon, a spokesman for SemGroup, told CFO.com.

SemGroup is trying to salvage its oil-trading business, which until recently handled 500,000 barrels of oil and refined products a day. It hopes to sell off some of the assets that it acquired since its inception in 2000.

“Our core business in energy distribution and storage remains strong, and we are taking aggressive steps to address our financial challenge,” Terry Ronan, SemGroup’s acting president and chief executive officer, said last month.

SemGroup was once the 12th largest private U.S. company. Record oil prices mixed with aggressive short positions on oil futures led the company to lose 72 percent of its value since it went public a year ago.

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