SemGroup examiner cites mismanagement, 'speculative' trading strategy

By Caroline Salls

Pittsburgh, April 16 - SemGroup, LP's former chief executive officer Thomas L. Kivisto's mismanagement and "speculative" trading strategy ultimately led the company into bankruptcy, according to a final report filed Wednesday by examiner Louis J. Freeh with the U.S. Bankruptcy Court for the District of Delaware.

According to the report, "Kivisto engaged in a complex trading strategy that introduced increased risk to SemGroup at the time of an unprecedented rise in the price of oil."

Freeh said Kivisto tightly controlled SemGroup's trading strategy and hired other executives to assist him in implementing his options trading strategy, "knowing that they had little or no prior commodity options trading experience, but could be trusted to do what he directed."

In addition, the examiner said the former management failed to properly integrate the commodities trading function into SemGroup's financial controls, which subjected the company to additional risk.

The examiner said Kivisto's mismanagement included placing the results of his options trading strategy on the books of SemGroup business units SemGas, SemFuel, SemMaterials, SemEuro and SemSteam.

Freeh also said members of SemGroup's senior management team were aware that Kivisto was using the company's funds and resources to engage in options trading activity on his own behalf, but they failed to stop it.

Kivisto and Wallace also approved the semiannual bonuses they paid to themselves and other executives.

Additionally, Freeh reported that Kivisto, former chief financial officer Gregory C. Wallace and former treasurer Brent Cooper provided false and misleading information to Bank of Oklahoma representatives about SemGroup's trading-related activities and to representatives of J. Aron, by claiming that the company's liquidity issues were exaggerated and that it did not have similar trading exposure with other brokers.

Freeh said the company could bring causes of action against Kivisto and the other executives for negligence and mismanagement, fraud and false statements, conversion and corporate waste, unjust enrichment, breach of fiduciary duties and breach of contract.

SemGroup, a Tulsa, Okla., privately held limited partnership that provides midstream services to North America's energy industry, filed for bankruptcy on July 22, 2008. Its Chapter 11 case number is 08-11525.

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