Sem Group meltdown

[cannon_fodder]

I prefer SemRon as it is a corporate and not a political scandal.

[Rex]

quote:  But lots of mullah missing does not trickle down.

That is moola....the mullahs are the guys who issue fatwas to the jihadists.

[FOTD]

A visual pun.....sorta like Semron.

Or SemRan as the case may be.....

[Jitter Free]

I am a financial adviser and I had one of my clients tell me that she was meeting with Mike Neal's the President of the Tulsa Chamber a day or two before the SemGroup story broke.  She said that in the middle of the meeting Mike took a call from Chet Caddeaux and in that phone call Chet told Mike about the SemGroup situation.  Mike's initial response was "we can't let the media get a hold of this yet--they will kill us."

I don't know what this adds to anything other than to show a number of non-inside people knew about the SemGroup meltdown before the story broke.

[Conan71]

quote:Originally posted by Jitter Free

I am a financial adviser and I had one of my clients tell me that she was meeting with Mike Neal's the President of the Tulsa Chamber a day or two before the SemGroup story broke.  She said that in the middle of the meeting Mike took a call from Chet Caddeaux and in that phone call Chet told Mike about the SemGroup situation.  Mike's initial response was "we can't let the media get a hold of this yet--they will kill us."

I don't know what this adds to anything other than to show a number of non-inside people knew about the SemGroup meltdown before the story broke.

Why would Chet have known anything about it?

[FOTD]

FB....FOTD will leave it to you to explain the hierarchy in Tee Town to jitter free.

Maybe Fraidy Bear could draw us a pic.

[Jitter Free]

This has been a number of months ago if not a year  or more ago.  Another one of my clients said that he had been invited by Greg Wallace the CFO of SemGroup to fly down to somewhere in the Carribean on SemGroup's jet for basically a free vacation on SemGroup.  My client had no working relationship with SemGroup other than being a friend of the CFO.  He went and said it was a huge jet and that a number of F&M Bank people and the Rib Crib founder went as well.  All at the expense of SemGroup.  Again I don't know what this shows other than the money was free flowing.

[FOTD]

quote:Originally posted by Jitter Free

This has been a number of months ago if not a year  or more ago.  Another one of my clients said that he had been invited by Greg Wallace the CFO of SemGroup to fly down to somewhere in the Carribean on SemGroup's jet for basically a free vacation on SemGroup.  My client had no working relationship with SemGroup other than being a friend of the CFO.  He went and said it was a huge jet and that a number of F&M Bank people and the Rib Crib founder went as well.  All at the expense of SemGroup.  Again I don't know what this shows other than the money was free flowing.

NOW THAT'S NEWS!

Two Bentley's....a his and her's they say.

Yep. Let's see what happens with some of these allegations.

Articles in this mornings paper were muted for sure by a headline print size and the following lack luster stories.

Where's the real stuff TW? It will appear in a new book titled "The Smartest Guys In the Room II".

[Jitter Free]

FOTD I'm not looking at the paper right now but one of the things I thought was interesting in the article was a quote from an unnamed SemGroup employee that said something like "the decision were made at the top but not by the one getting all of the media attention."  Again this is just paraphrasing from my recollection of the article.  It will be interesting if anything comes of this statement or if this was just some SemGroup employee talking to be talking.

[FOTD]

Where ever, it will not be further explained by the local tabloid. And with sources such as shopping center owners and ex politicians the World's really getting to the bottom. Bottom of the barrel for sources not bottom of the facts.

But look for the more surly stuff in The Murdock Street Journal....

How long's the grand jury go on for? FOTD imagines any rumor would be investigative material for wrong doings.

It's all demonesque of Enron. Tee Kay rhymes with Ken Lay and it ain't ova 'til the lady sez Dnova.....

[MacGyver]

Any royalty owners out there who haven't received their check from SemCrude subsidiaries?

Apparently the checks for last month didn't go out.

Not a good sign for re-organization.

M

[FOTD]

XTRA XTRA...READ ALL ABOUT IT!

http://www.tulsaworld.com/webextra/content/items/SemGroupExaminerReport.pdf


Takes a while to digest......do they have wifi in D'Nova?

[cannon_fodder]

Three of the Debtors' former principals (former Chief Executive Officer Thomas L.
Kivisto ("Kivisto"), former Chief Financial Officer Gregory C. Wallace ("Wallace"), and former
Treasurer Brent Cooper ("Cooper") refused the Examiner's requests for interviews. They also
each invoked their Fifth Amendment privilege against self-incrimination during the Examiner's
subsequent depositions of them.

Ouch.  It can't be construed as a negative in a criminal case, but it can in a civil case.  Never looks good when someone takes the 5th in relation to a business transaction.  Few reason to do so unless they could at very least be construed as criminal.

The short version:

F. The Examiner's Conclusions
1. 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. There were aspects of
Kivisto's trading strategy that made it speculative and which ultimately led to the filing of the
Debtors' bankruptcy petitions. Kivisto engaged in mismanagement in this regard.
2. Kivisto tightly controlled SemGroup's trading strategy. He was responsible for
hiring Coen and Oven, and he recruited Shimonov, to assist him in implementing his options
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trading strategy, knowing that they had little or no prior commodity options trading experience,
but could be trusted to do what he directed. Similarly, Allen was chosen as Risk Director
although he had no prior risk management experience. Kivisto engaged in mismanagement in
this regard.
3. Wallace, Kivisto and Cooper failed to integrate properly the commodities trading
function into SemGroup's financial controls, which subjected SemGroup to additional risk.
They engaged in mismanagement in this regard.
4. As SemGroup's founders and business leaders from 2000 to 2008, Foxx, Wallace
and Kivisto failed to develop a suitable risk management policy or to integrate one into
SemGroup's business controls. Further, they failed to comply with the RMP that did exist. They
engaged in mismanagement in this regard.
5. At various points in time, members of SemGroup's senior management team
(Kivisto, Wallace, Cooper and Mr. Alex Stallings ("Stallings")) were aware that Kivisto was
using SemGroup's funds and resources to engage in options trading activity on his own behalf
(through Westback), and that such activity had the potential to expose, and did expose,
SemGroup to increased risk, yet they failed to stop it. They engaged in mismanagement in this
regard.
6. Kivisto, Wallace and Cooper engaged in mismanagement and misconduct by
allowing Kivisto to engage in physical commodity trades for SemGroup through Westback, for
which Kivisto received additional compensation from SemGroup for activity that was within his
normal scope of duties.
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7. Kivisto engaged in misconduct by concealing or attempting to conceal the full
nature and extent of Westback's relationship with SemGroup from SemGroup's MC and others.
8. Kivisto engaged in mismanagement and misconduct by using SemGroup's
resources and its personnel to further his personal, business and financial interests, including
Westback, Gallery KH, KN Art Gallery and D'Novo Lean Gourmet.
9. Cooper, and perhaps other SemGroup personnel, engaged in mismanagement and
misconduct, by: (A) incorrectly categorizing SemGroup's commodities trading positions in the
MtM and Position Reports submitted to SemGroup's lenders, which made the position reports
for each affected category incorrect; (B) falsely claiming in MtM and Position Reports that
SemGroup personnel had operated within the guidelines of SemGroup's RMP, when, in fact,
SemGroup was in violation of its trading limits and its bank covenants on numerous occasions
during the reporting periods; (C) submitting data in MtM and Position Reports which did not
match the data contained in SemGroup's internal Summary Position and MtM spreadsheets; and
(D) submitting at least one false "Borrowing Base Report" on July 11, 2008, which showed that
SemGroup had in excess of $72 million of credit available as of July 7, 2008.
10. Kivisto engaged in misconduct and mismanagement, by engaging in, or causing
others to engage in: (A) "naked options" transactions; and (B) transactions for his personal
benefit, through Westback, an entity he owned and controlled (an "Affiliate," as defined in
SemGroup's Pre-Petition Credit Agreement, defined below), all in violation of SemGroup's
banking covenants.
11. Kivisto engaged in mismanagement by placing, or causing to be placed, the
results of his options trading strategy on the books of other SemGroup business units, including
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SemGas, SemFuel, SemMaterials, SemEuro and SemStream, thereby subjecting these entities to
increased risk.
12. Kivisto and Wallace engaged in misconduct and mismanagement by approving
the semi-annual bonuses paid to themselves and other executives without MC approval, and by
personally benefiting from their own decisions in this regard, in violation of their employment
agreements.
13. Kivisto, Wallace and Cooper provided inaccurate and misleading information to
members of SemGroup's MC that SemGroup's trading activity was supported by its physical
inventory.
14. Kivisto, Wallace and Cooper provided false and misleading information to Bank
of Oklahoma ("BOK") representatives during their meetings and conversations with them about
SemGroup's trading-related activities.
15. Wallace provided false and misleading information to representatives of J. Aron,
by claiming that SemGroup's liquidity issues were exaggerated, and that it did not have similar
trading exposure with other brokers.
16. Kivisto had a conflict of interest by authorizing substantial bonus payments to
Oven (approximately $1.5 million in 2007), a trader he hired with no previous trading experience
to assist him in implementing his trading strategy, and someone with whom he had a close
personal relationship.
17. Kivisto and Wallace breached the terms of their employment agreements by
accepting semi-annual bonuses for themselves that had not been approved by the MC.
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18. Kivisto, Wallace and Foxx had a conflict of interest by permitting Ms. Anna
Hollinger ("Hollinger"), their outside business partner and a person with whom Kivisto had a
close personal relationship, to engage in, and to reap the benefits of, a business relationship with
SemGroup. They did so without notifying SemGroup's MC of their ownership interest in the
vendor company, or of Kivisto's personal relationship with their co-owner, Hollinger.
G. Potential Causes of Action
The Debtors' estates have potential claims or causes of action including, without
limitation, the following: [fraud, conversion, negligent mismanagement, and on and on]

I recommend reading the summary . . . first 30 pages or so.  Explanatory and damning.

[cannon_fodder]

Man, I'm sorry to spam with quips from this article but . . .

The basic philosophy was that oil would return to a normal range of $40-70 a barrel eventually.  To facilitate that bets were placed putting oil in this range.  If the bet looked like it would time-out and lose, the bet was rolled forward and more money was risked.   From 2000-2006 the bets usually paid off.  If they didn't, the subsequent cover bets (option trading, mind you) did.   The report summarizes it fantastically by analogizing system gambling:

An analogy of sorts can be drawn, for illustrative purposes, between Kivisto's options
trading strategy and a game of chance. When playing roulette, an individual can bet on "red" or
"black." If an individual placed a bet on "black" and lost, that person could stop playing the
game or place another bet and play again. If the person stopped playing the game at that point,
he or she would realize a loss. If the person played again, the loss could be "rolled forward," by
placing another bet. However, additional money would be required to place the bet. If the
person continued to double the bet until the person won, his or her previous losses would be
eliminated. However, the person would need to continue risking an increasingly large amount of
money on the bets, and could do so only for as long as he or she had sufficient funds to place
additional bets.


SemGroup was like the person in the previous hypothetical who bet on "black." In this
context, "black" represents the belief that the price of oil would decline in the future, while "red"
represents the belief that the price of oil would continue to rise. SemGroup continued to lose by
betting on "black." In other words, "red" was the winning bet in 2007 and 2008 because the
price of oil continued to rise. However, SemGroup continued to place bets. It engaged in an
increasing volume of options trades, in part to obtain additional cash from the premiums it
received from them, with the hope that, eventually, "black" would be the winning bet, and
SemGroup's "rolled forward" trading losses would evaporate.

Report, page 7-8.

[Conan71]

My understanding was that if he could have kept the shell game up for another month when energy prices started to fall, SEM would have been okay.  Is that the correct read on it?  They were betting on shorts and well, took it in the shorts, yes?

It's a shame his greed made Kivisto such an idiot.  Their tank farm and asphalt businesses were basically cost-plus operations which are real money-makers so long as you have product to go through them.