Ever hear of the United States Energy Information Administration? Thought not. It was formed by Congress in 1977 to monitor energy information. It provides information to the CFTC so that the CFTC can monitor the markets in regulates. On April 9 the USEIA released a second interim report stating that, based on the information it has, it still cannot blame last year's oil price hike on specualtors. So what information does the USEIA have?
It only has the trades on the New York Mercantile Exchange. IT HAS NO INFORMATION ON THE OVER THE COUNTER UNREGULATED MARKETS SUCH AS ICE. So, all trades that use the Enron loophole, created by former Goldman man Mr. Gensler, escape scrutiny altogether. And now our president wants to put Mr. Gensler in charge of the CFTC. Like I said, you can't make this stuff up.
Monday, May 4, 2009
A Day Early
Guess I spoke a day too soon, since the Wall Street Journal this morning hammered former Goldman director Stephen Friedman, the former chairman of the New York Fed when
Goldman got $10 billion in TARP funds. Friedman had large Goldman stock holdings and was in violation of Fed rules, but of course the rules were waived so that he could keep his shares and still regulate....Goldman, among others.
Wonder why someone nationally cannot put all the outstanding issues on the same page, or at least the same article. Guess they all have to chase their own stories....
Goldman got $10 billion in TARP funds. Friedman had large Goldman stock holdings and was in violation of Fed rules, but of course the rules were waived so that he could keep his shares and still regulate....Goldman, among others.
Wonder why someone nationally cannot put all the outstanding issues on the same page, or at least the same article. Guess they all have to chase their own stories....
Sunday, May 3, 2009
Where is Congress?
Let's see, in the last 3 months we learned 1) Goldman may have caused the oil price spike last summer for its own gain; 2) Goldman has been accused of manipulating the stock of Bear Sterns and Lehman Brothers by spreading negative rumors; 3) Goldman recieves $12.9 billion in Tarp funds from the AIG bailout while admitting to hedging against AIG; 4) Goldman has been accused of advising the feds to let Lehman go, while saving AIG, hell, I could go on ad nauseum.
Yet only Maxine in Congress seems to care. The national press sure as hell doesn't. Guess when you have your people placed all over the Fed annd Treasury Department, you feel a little insulated. Maybe its just the money Goldman spends lobbying our elected officials. Maybe we just have not yelled loud enough. I have to say that Goldman sure has been quiet since it got a little negative press last month and Mr. Blankfien went on the offense and promised to look at the bonuses. Waiting for the thunderstorm to pass through I guess.
Yet only Maxine in Congress seems to care. The national press sure as hell doesn't. Guess when you have your people placed all over the Fed annd Treasury Department, you feel a little insulated. Maybe its just the money Goldman spends lobbying our elected officials. Maybe we just have not yelled loud enough. I have to say that Goldman sure has been quiet since it got a little negative press last month and Mr. Blankfien went on the offense and promised to look at the bonuses. Waiting for the thunderstorm to pass through I guess.
Tuesday, April 28, 2009
Meanwhile, back to SemGroup
SemGroup's former CEO, Tom Kivisto, through his counsel, has come out swinging at the report of former FBI Director Louis Freeh, who was appointed examiner in the SemGroup bankruptcy. Counsel correctly notes that the voluminous report fails to identify a single person from Goldman or Bank of America who was supposedly interviewed. Nor does the report refernce a single document from Goldman other than the GS TRUE platform offering prepared for SemGroup by Goldman (wherein Goldman obtained Sem's trading book). In fact, Bank of America, as administrative agent of SemGroup's bank group (which includes Goldman) was given the opportunity to scrub the report in advance.
This all begs the question of why the examiner totally ignored the already broken story of the possible manipulation of oil prices by Goldman when issuing his report. Kinda like the way it has been ignored by the national media. Maybe when you have so many of your people in the government you don't have to worry about such things. You bet both sides of the deal, and take your government money. Maybe you then spread that money around. Hell, I don't know.
Freeh has now hit back, claiming Kivisto should have allowed himself to be sworn under oath as a part of the investigation. You would think the former FBI Director would know about the 5th Amendment. Nah, maybe he just wanted to put Kivisto in a star chamber with no preparation. Anyway, I am damn sure Kivisto's counsel kept Freeh informed, just like Forbes did. The facts they provided just did not apply to the foregone conclusion.
This all begs the question of why the examiner totally ignored the already broken story of the possible manipulation of oil prices by Goldman when issuing his report. Kinda like the way it has been ignored by the national media. Maybe when you have so many of your people in the government you don't have to worry about such things. You bet both sides of the deal, and take your government money. Maybe you then spread that money around. Hell, I don't know.
Freeh has now hit back, claiming Kivisto should have allowed himself to be sworn under oath as a part of the investigation. You would think the former FBI Director would know about the 5th Amendment. Nah, maybe he just wanted to put Kivisto in a star chamber with no preparation. Anyway, I am damn sure Kivisto's counsel kept Freeh informed, just like Forbes did. The facts they provided just did not apply to the foregone conclusion.
Monday, April 20, 2009
A little like AIG.....
Goldman has been accused by various reputable publications of profiting twice from the AIG bailout, by hedging against AIG on one side, and getting paid $12.9 billion on counterparty obligations of AIG by our government on the other side. Maybe they learned the trick in SemGroup
You see, they hedged against SemGroup. At the same time, J. Aron bought oil from Semgroup. The day before the bankruptcy, J. Aron terminated the trading agreements (see below) and netted out $350 million owed to SemGroup. Now who got hurt? The producers who sold the oil to SemGroup in June and July did not get paid because SemGroup did not get paid. So the people who worked and sweated their butts off to get the oil out of the ground have recieved no payment for the highest price oil in history. But J. Aron did. And the public got to pay $3.50 a gallon.
You see, they hedged against SemGroup. At the same time, J. Aron bought oil from Semgroup. The day before the bankruptcy, J. Aron terminated the trading agreements (see below) and netted out $350 million owed to SemGroup. Now who got hurt? The producers who sold the oil to SemGroup in June and July did not get paid because SemGroup did not get paid. So the people who worked and sweated their butts off to get the oil out of the ground have recieved no payment for the highest price oil in history. But J. Aron did. And the public got to pay $3.50 a gallon.
Thursday, April 16, 2009
And The Winner Is...
The Louis Freeh report is now"out" at least to the public in the SemGroup bankruptcy. Of course Goldman and the banks got to scrub it prepublication for "privilege". At first blush Freeh appears to blame SemGroup bosses, Kivisto, Wallace, and others. A closer inspection reveals that SemGroup traders believed they had a trading strategy that worked so long as oil stayed within its historical range (can you say supply and demand) The problems arose in may and June 2008 when"incredible volitility and one way movement of oil market overwhelmed the investment strategy" (can you say speculation)
More importantly, the Report confirms that Forbes was right. Buried right in the middle, at page 131, it states that "Stallings confirmed that Goldman made more data requests to SemGroup during its due diligence inquiry regarding the types of trades that SemGroup had entered into, including a breakdown by commodity type and types of positions". While the report cites various Goldman and J. Aron sources, the sources are not named. Amazingly, the report accepts Goldman's version that it terminated SemGroups' private GT True offering in eraly July by phone call only.
Enough has been provided between the lines for the SemGroup unsecured creditor's committee to demand its own investigation of Goldman's role in this fiasco. Go for it guys!
More importantly, the Report confirms that Forbes was right. Buried right in the middle, at page 131, it states that "Stallings confirmed that Goldman made more data requests to SemGroup during its due diligence inquiry regarding the types of trades that SemGroup had entered into, including a breakdown by commodity type and types of positions". While the report cites various Goldman and J. Aron sources, the sources are not named. Amazingly, the report accepts Goldman's version that it terminated SemGroups' private GT True offering in eraly July by phone call only.
Enough has been provided between the lines for the SemGroup unsecured creditor's committee to demand its own investigation of Goldman's role in this fiasco. Go for it guys!
Monday, April 13, 2009
They Cared For A Day
June 2, 2008, at a senate hearing on oil specualtion, Michael Greenberger testified how investment banks, including Goldman Sachs, were "continuing and repeating the 'subprime' crash of the securities markets, and all their derivatives, on the commodities markets" He went on to note "I find it highly ironic that when you control the price of oil, you can 'predict' when it will go from $130 to $200 a barrel". At a prior hearing on May 20, senators grilled the CFTC for allowing much of the speculative trading and urged it to "muscle up". In fact, much of the speculative oil trading is done through the Intercontinental Commodity Exchange (ICE), headquartered in Atlanta, and under the jurisdiction of the British Financial Services Authority (This is no joke)
10 months later, the price of oil is a third of what is was last summer, Senator Stevens has been indicted, convicted and released, and we have a new president who wants to put the guy who helped invent these loopholes in charge of the CTFC. Well hell, the price of oil is down now, no one cares, we can get away with it. Thank God for Senator Bernie Sanders, the Vermont independent, who has put a hold on the nomination on these very grounds. Someone is still awake.
10 months later, the price of oil is a third of what is was last summer, Senator Stevens has been indicted, convicted and released, and we have a new president who wants to put the guy who helped invent these loopholes in charge of the CTFC. Well hell, the price of oil is down now, no one cares, we can get away with it. Thank God for Senator Bernie Sanders, the Vermont independent, who has put a hold on the nomination on these very grounds. Someone is still awake.
Sunday, April 12, 2009
Somethimes you just shake your head
The Obama administration's nominee to head the Commodity Futures Trading Commission is yet another Goldman alum, Gary Gensler. Gary was also undersecretary of the Treasury during the Clinton administration. There he was instrumental in creating the Enron Loophole that deregulated electronic energy trading. The very same loophole Goldman may have exploited last summer when we all paid at the pump.
Freaking Amazing..........
Freaking Amazing..........
Saturday, April 11, 2009
Fear of Failure
When the Fed, through JP Morgan, bailed out Bear Sterns, Timothy Geithner rationalized that the potential failure could hurt America. He stated "(a) failure to act would have added to the risk that Americans would face lower incomes, lower home values, higher buying costs for housing, education, other living expenses, lower retirement savings and rising unemployment. We acted to avert the risk in the classic tradition of lenders of last resort...." I'm sure he and Paulsen and the other members of the Goldman club then patted themselves on the back for a job well done.
Sooooo, where the hell were these guys last summer when the price of gas doubled? Seems like that had an impact on our income and expenses. I forgot. No one is watching that store. To busy funneling bailout money to their buddies I guess......
Sooooo, where the hell were these guys last summer when the price of gas doubled? Seems like that had an impact on our income and expenses. I forgot. No one is watching that store. To busy funneling bailout money to their buddies I guess......
Friday, April 10, 2009
And on The Way Down
Flying J Truck Stops took bankruptcy December 22, 2008. This Utah based company was the 19th largest privately held company in the US. They owned 2 refineries, 700 miles of pipeline, and dozens of retail outlets. The bankruptcy was brought on by "near-term liquidity constraints brought on the precipitous drop in the price of oil beginning in September of 2008 and continuing through the present as well as the recent tightening credit markets".
Now who was Flying J's counterparty when it hedged? J. Aron and Company, of course. J. Aron and the debtor have filed a motion to approve settlement that is totally devoid of facts, other than J. Aron apparently owes Flying J about $10,000,000, and that on May 8, 2008, J. Aron and the debtor entered an ISDA master agreement and schedule. It also turns out that one of Flying J's hedging analyst went to work for Goldman as an analyst the same month. Curious. Wonder if he took a book?
Now who was Flying J's counterparty when it hedged? J. Aron and Company, of course. J. Aron and the debtor have filed a motion to approve settlement that is totally devoid of facts, other than J. Aron apparently owes Flying J about $10,000,000, and that on May 8, 2008, J. Aron and the debtor entered an ISDA master agreement and schedule. It also turns out that one of Flying J's hedging analyst went to work for Goldman as an analyst the same month. Curious. Wonder if he took a book?
Thursday, April 9, 2009
Business is Business: The Collapse of SemGroup and Others Through
Business is Business: The Collapse of SemGroup and Others Through
The Manipulation of World Oil Prices by Goldman Sachs
(An Independent Review)
The attorney for the former chief executive officer of Tulsa-based SemGroup LP, the man who’s leading an attempt to take the company over and some Oklahoma-based oil producers are asking whether a national commodities broker is responsible for wrecking the midstream company, and for affecting the entire world financial system through the manipulation of oil prices.
Forbes magazine posted an article titled “Did Goldman Goose Oil?” on its Website on March 25, 2009 about the allegations, noting that SemGroup, a $14 billion (sales) private firm once led by chief executive Tom Kivisto, had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by Kivisto.(1) The same story, “Black Gold, How Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant SemGroup”, is the cover story of the April 13, 2009 edition of Forbes.
It reads, “When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant SemGroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla.”
The Forbes article goes on to report that SemGroup’s short positions amounted to the equivalent of 20 percent of the nation's crude oil inventories. With the credit crunch eliminating any hope of meeting a $500 million margin call, SemGroup filed for bankruptcy on July 22.
It also reports that numerous people familiar with the events insist that Citibank, Merrill Lynch and especially Goldman Sachs (Goldman) had knowledge about SemGroup's trading positions from their vetting of an ill-fated $1.5 billion private placement deal last spring
John Catsimatidis , the billionaire grocer and oil refiner wanting to buy the company and reorganize it, calls what happened a “$500 billion fraud on the people of the world.”
“Nothing's been proven, but if somebody has your book and knows every trade, it would not be difficult to bet against that book and put the company into a tremendous liquidity squeeze," John Tucker, the Tulsa attorney who represents Tom Kivisto, is quoted as saying in the Forbes article.
Some sources say their information suggests the financiers believed SemGroup in fact was responsibly managing its assets and trading policies, even up to a few weeks before its collapse. Indeed, sources suggest the company did not fail until after other supporting financial institutions, namely Bank of America, Merrill Lynch and Goldman, backed away from plans they had made with the company to support its business plan.
Similar claims were recently made by Oklahoma producers who filed a class action suit against Goldman in U.S. Federal Court in Muskogee. (2)
What follows is an independently derived timeline compiled from numerous independent and published sources including, but not limited to court records, blog sites, published stories, books, Congressional records, and other published materials. All of these sources had significant impact on the development of this timeline.
September, 1998:
Goldman offers to assist Long-Term Capital Management, who is hemorrhaging money due to its volatility trades. The following is Roger Lowenstein’s account of what occurred from When Genius Failed:
The two firms quickly struck a deal, conditional on Goldman’s raising the money and on Long-Term’s passing an inspection, a customary process. Goldman had to move fast, before any more of Long-Term’s capital was lost. The week of September 14, the fund handed over mountains of files …. A Goldman team peppered the arbitrageurs with questions. Then a half-dozen lawyers from Sullivan & Cromwell, Goldman’s outside law firm, marched in and subjected the emissaries from Long-Term to a torturous grilling.
In Greenwich, Goldman’s sleuths, who had the run of the office, left no stone unturned. Long-Term’s staff couldn’t keep track of who the Goldman people were, so many were rummaging through the hedge fund’s files. A key member of the Goldman team was Jacob Goldfield, a lanky and brilliant but abrasive trader. According to witnesses, the headstrong Goldfield appeared to be downloading Long-Term’s positions, which the fund had so zealously guarded, from Long-Term’s own computers directly into an oversized laptop (a detail Goldman later denied). Meanwhile, Goldman’s traders in New York sold some of the very same positions. At the end of one day, when the fund’s positions were worth a great deal less, some Goldman traders in Long-Term’s offices sauntered up to the trading desk and offered to buy them. Brazenly playing both sides of the street, Goldman represented investment banking at its mercenary ugliest. To J.M. and his partners, Goldman was raping Long-Term in front of their very eyes.
Long Term Capital Management is eventually bailed out by a consortium of banks, including Goldman, that is put together by the Fed, who fears a Systemic Failure of the markets without a rescue.
2000:
Congress passes Commodity Futures Modernization Act, which deregulates over the counter (OTC) derivative energy trading.
2001 to Present:
Trading of OTC energy derivative skyrockets on the Intercontinental Exchange (ICE), where founding members include Goldman, Morgan Stanley and BP.
June, 2003:
Riverstone/Carlyle purchases controlling stock of Magellan Midstream Partners and its refined product pipeline system.
April, 2004:
Riverstone/Carlyle becomes general partner of Buckeye Partners and its pipeline systems in northeast.
December, 2004:
Riverstone/Carlyle acquires a portion of SemGroup, eventually owning 29.3 percent of the company and having a third of the seats – two – on SemGroup’s Board of Directors. Members of Riverstone’s Board of Directors, meanwhile, are two former Goldman managing directors, and the former managing director of BP. Riverstone’s two owners, Pierre Lapeyre and David Leuschen, are both formerly of Goldman and are Riverstone’s two original representatives on SemGroup’s Board of Directors.
2005:
Goldman and Kelso & Co. purchase stake in Coffeyville, Kansas refinery.
2006:
Bank of America joins the $1 billion SemGroup credit facility and assumes lead from BNP Paribas, taking a $50 million share of the facility. Terry Ronan is Bank of America’s account officer to SemGroup.
August, 2006:
Riverstone/Carlyle, Goldman and others acquire Kinder Morgan, Inc.
Late 2006:
Terry Ronan jumps to Merrill Lynch and takes his entire team, except for Bert Balboni, who becomes the Bank of America account officer for SemGroup. Balboni travels to Tulsa to keep Bank of America as the credit facility’s lead bank. Bank of America is concerned that Merrill Lynch will be invited by SemGroup to become the new lead.
Also, Andrew Ward and Bartow Jones assume Riverstone/Carlyle’s seats from Lapeyre and Leuschen.
SemGroup’s over-the-counter trading partner is ConAgra Foods. The deal with ConAgra requires little in the way of margin calls, as ConAgra trades storage and the purchase of physical crude from SemCrude as the offset to posting SemGroup margins.
February, 2007:
SemGroup moves wholly-owned assets into the public sector, creating a publicly-traded subsidiary, SemGroup Energy Partners, underwritten by Citibank and Merrill Lynch. (3)
April, 2007:
Tyson Slocum, director of the Public Citizen’s Energy Program, releases a paper titled “Oil Mergers, Manipulation and Mirages: How Eroding Legal Protections and Lax Regulatory Oversight Harm Consumers”, detailing how consumers are being harmed by lax regulatory oversight and eroding legal protections related to the trading of oil and natural gas as commodities.
Slocum notes in his article that a key to the problem is the deregulation of commodities trading markets. The creation of Rule 35 by the U.S. Commodity Futures Trading Commission in 1992 exempted certain energy trading contracts from requiring that they be traded on a regulated exchange and allowed for large energy futures companies such as Enron and Goldman to trade energy futures between themselves outside of regulated exchanges. The “Enron Loophole” also exempted those trades from anti-fraud provisions of the Commodity Exchange Act. A similar rule created in 2003 exempted large, commercial participants trading various energy contracts in the same way. These steps provide new opportunities for oil companies and financial firms to manipulate prices, he writes.
Slocum adds that an emerging trend of energy traders buying into and taking over companies that control energy infrastructure assets, such as pipelines and storage facilities, provide the traders with additional “insider” information that can help them manipulate markets.
He notes a deal in August 2006, where Goldman, AIG and Carlyle/Riverstone announce a $22 billion acquisition of Kinder Morgan Inc. Kinder Morgan Inc. controlled 43,000 miles of crude oil, refined products and natural gas pipelines, in addition to 150 storage terminals. Slocum notes Goldman and other investment banks are acquiring these energy assets for informational purposes, for an “insider’s peek into the physical movement of energy products unavailable to other traders.
Congress added to the problem by deregulating energy trading exchanges in December 2000, which exempted electronic exchanges like those set up by Enron from regulatory oversight.
These changes were made despite a report from the President’s Working Group on Financial Markets, comprised of Treasury Secretary Lawrence Summers, Federal Reserve Chairman Alan Greenspan, Chairman of the Securities and Exchange Commission Arthur Levitt and Commodity Futures Trading Commission Chairman William Rainer, which concluded that energy trading must not be deregulated.
Slocum says trading on these unregulated exchanges has skyrocketed. He uses the Intercontinental Exchange, founded by Goldman, BP, Shell, and Totalfina Elf as an example. This exchange became a publicly-traded corporation in 2005. In 2006, it traded 93 million contracts, a 120 percent increase over its 2005 trades. Its trades of $12.6 million contracts just in January 2007 represented a 166 percent increase from the trades it handled the same time a year before.
Slocum cites a bipartisan investigation released in 2006 by the U.S. Senate’s Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs, which blamed unregulated energy trading for adding as much as $25 to the price for a barrel of oil at the time.
“Oil companies, investment banks and hedge funds are exploiting the lack of government oversight to price-gouge consumers and make billions of dollars in profits”, Slocum writes. (4)
Late summer, early fall 2007:
ConAgra determines to get out of energy business, and later sells its energy unit. SemGroup has to replace the capacity traded with ConAgra by looking to NYMEX markets. This was not in SemGroup’s original business plan due to the cost of margin calls.
September, 2007:
Coffeyville Refinery suffers $89 million loss due to BP hedges which required operations, and flood shut down refinery. Counterparty is J. Aron.
November 19, 2007:
SemGroup enters OTC trading agreement with J. Aron, the commodities trading division of Goldman.
December, 2007:
GE Energy buys the Merrill Lynch unit employing Ronan.(5) He is recruited by SemGroup as a financial officer, under Greg Wallace, SemGroup’s Chief Financial Officer.
February 4, 2008:
SemGroup meets with Bear Stearns to build an over-the-counter trading account to replace ConAgra. Agreement closes, but then Bear Stearns goes bankrupt in March.
It was no secret at Bear Stearns what Goldman would do with information it received. Early in the second week of March that killed Bear Stearns, Goldman called to offer “help”. In his book, House of Cards, William D. Cohen discusses Ben Stearns’ reaction:
If Goldman was calling to be “helpful,” Molinaro and Upton thought, that meant everyone on Wall Street knew that Bear Stearns was in serious trouble. “So that’s taps,” Upton said. “That’s the trumpet playing because all that means is they want to come in and see our positions so they can trade against us and make money.”
March 6, 2008:
Meetings begin in Tulsa between SemGroup and Goldman’s Tradable Unregistered Equity division to raise perhaps as much as $1.5 billion in capital for SemGroup, which typically was thin on equity and working capital but long on enterprise projects.
March 13, 2008:
SemGroup representatives travel to New York to meet with Goldman representatives.
April 3 and 4, 2008:
Goldman meets with SemGroup in Tulsa to discuss what banks should be included in an offering and to develop a time line, a structure, and a presentation design of SemGroup’s Tradable Unregistered Equity vehicle, GS True.
Late April, 2008:
SemGroup provides Goldman with all its NYMEX and OTC positions for the entire company. Goldman’s due diligence team is provided the opportunity to examine all trading records, closed and existing, and to follow the trades. Goldman must load all trades into its system in order to verify through a “stress test” mark to market calculations that SemGroup reports to the bank group each Friday. The stress test was to determine what would happen to the book with a $10 change in the price of oil.
The purpose of this exercise is to prove to Goldman the validity, viability and veracity of how SemGroup reported its positions to the bank group and to verify the positions. Goldman advises SemGroup that it provided all data set to a third industry trader for third-party verification.
Pursuant to SemGroup’s own internal trading rules, all trades were to be delta neutral on a daily basis. This required SemGroup to take long or short positions at the end of every day, depending on the closing price. Goldman now knows SemGroup’s trades, knows SemGroup’s volumes and knows SemGroup’s own rules.
Goldman reports back to Brent Cooper, SemGroup’s controller or Greg Wallace, CFO, that verifications were all positive. SemGroup has cleared a big hurdle for moving forward on its financing plans.
May, 2008:
Margin calls begin to grow markedly and are problematic for SemGroup as the price of oil begins to skyrocket. These margin calls become increasingly painful. They are a result of increasing volatility and high prices believed to have been driven by market manipulation and predatory trading.
The increasing volatility would be a direct result of Goldman, through J. Aron, trading ahead of SemGroup’s book, because it knew what SemGroup would do at the end of every day to attempt to comply with its rules and stay delta neutral. The short squeeze is on.
May 6, 2008
Goldman’s Arjun Murti calls for oil price spike of $150-200 a barrel.
May 19, 2008:
Goldman brings in CitiBank and Merrill Lynch for an in-depth trading strategy review with Tom Kivisto and the trading group. After an extensive question and answer session, everyone gives their blessings, and so the last hurdle is cleared for moving forward with SemGroup’s financing plans. Organizers plan to start the GS True road show May 27.
CitiBank and Merrill Lynch are to be on the “book cover” with Goldman as lead.
Goldman personnel on the deal include Bill Wicker, managing director; Lou Talarico, vice president; Eric Batchekter, vice president; Michael Sachs, associate; Christina Scalzo, analyst; Andrew Lauk, analyst; John Daly, managing director; Gregg Weinstein, managing director; Olympia McNerney, associate; Horsha Rajamoni, analyst; Daniel Shetler, managing director; Karen Canisius, vice president; Erin Cavanagh, analyst; Richard Cohn, vice president; and Bruce Schwartz, vice president. Baker Botts, LLP and Sullivan and Cromwell, LLP are counsel, with PricewaterhouseCoopers as accountants.
The financiers understand and approve SemGroup’s trading strategy, how it makes money and what kinds of positions it uses, thus proving to itself (Goldman) that there is no “black box” used in SemGroup success.
Goldman now realizes the company is successful because of a well-planned strategy of long-term supply and lots of storage, driving the optionality of its positions. SemGroup used the strategy since its inception.
SemGroup now has four large, sophisticated, and knowledgeable energy traders who have signed off on and verified that SemGroup is in full compliance with all bank reporting requirements and risk management policies.
May and June, 2008:
SemGroup begins discussions with Bank of America regarding an “accordion” type credit facility that grows and contracts depending on the volatility of the oil market. Bank of America is initially interested.
June, 2008:
On June 5, with no news catalysts, oil futures spiked $5 a barrel, the biggest one-day jump since the outbreak of the first Gulf war. The next day, on no news, the price jumped another $10 to $138. Volatility increases daily. Short squeeze continues.
June 9, 2008:
SemGroup management with Lou Talarico of Goldman and others make second road trip to Mideast to try and tie up an anchor equity player, and return successful.
June 12, 2008:
SemGroup and J. Aron enter letter agreement regarding offset payment obligations. A fatal move for SemGroup.
June 26, 2008:
SemGroup management and Goldman travel to London to finalize the arrangements with representatives of its large Mideast anchor player it found earlier in June and to add partners to the GS True platform. The commitment made by the player is $500 million in cash equity.
Goldman represents SemGroup; Lehman Brothers represents the Mideast player; and they are to write final agreement.
Goldman then advises SemGroup that the road show will start again after July 4 holiday.
But after the holiday, Goldman stops returning phone calls to SemGroup. with no reasons provided.
Late June, 2008:
Bank of America advises SemGroup that it is not going to renew letters of credit, which directly impacts the company’s liquidity to post margins and its ability to purchase oil.
June and July, 2008:
J. Aron bought $435 million in oil from SemGroup, and BP bought $175 million in oil from the Tulsa-based company.
SemGroup, meanwhile, continues to use more of its line of credit to pay margin calls ($1.96 billion in first quarter), double what was done in previous quarter.
Margin calls increase as volatility goes to record levels, as does the outright price for oil. To sources, it appears someone clearly is squeezing SemGroup’s position.
Early July, 2008:
Riverstone/Carlyle shows no interest in pursuing new equity for SemGroup. Riverstone/Carlyle had Goldman’s analysis from the GS True offering and thereby knows the exact worth of the company, then in excess of $1.3 billion. Riverstone also has knowledge that Bank of America will not extend letters of credit. Are they waiting to acquire the pipeline and tankage assets of SemGroup with Goldman on the backside, when the short squeeze is over and SemGroup’s liquidity is exhausted?
July 9, 2008:
Wallace, Ronan and others are in discussions with Balboni about extending lines of credit. Balboni asks what is SemGroup’s worst-case scenario, and is told that if J. Aron and BP don’t pay what they owe for June and July purchases, producers cannot be paid. The account is turned over to Bank of America workout group later that afternoon. What was the justification for this rash decision?
July 12, 2008:
The price of oil peaks at $147.50 a barrel. Volatility at all-time high.
July 15, 2008:
Beginning in late June, the company begins negotiating with Barclays to do a joint venture on SemGroup’s book, which has grown too large for SemGroup to handle alone. When Bank of America refuses to renew letters of credit and sends accounts to workout, SemGroup has two choices: let individual trades run off and let NYMEX foreclose; or novate the book. Eerily reminiscent of what happened to Long-Term Capital Management 10 years before, NYMEX believes that the oil market (and possibly others) will Systemically Fail if SemGroup lets trades run off and requests the company consider novation. SemGroup offers book to three parties; only Barclays can step up and take book in 48 hours. On July 15, 2008, entire book is sold to Barclays for a payment between $75 and $100 million by SemGroup for a novation, resulting in a $2.4 billion mark to market loss for SemGroup. This is a surprise to Riverstone and Goldman. They paid Barclays to reduce the losses incurred due to the actions of Goldman Sachs.
In the second quarter 2008, Chesapeake recorded a $3.4 billion mark to market loss on hedges; Newfield Exploration, $244 million loss; Anadarko Petroleum, $1.6 billion loss; Noble Energy, $144 million loss. These losses remain on paper until the accounts are settled. The next quarter, Chesapeake reported a $2.8 billion gain on the same hedges.
Does market immediately settle after short squeeze is over and Barclays buys the book and Goldman realizes it lost its leverage because its short squeezes no longer affect SemGroup?
July 16, 2008:
Meeting of syndicate banks is held, and unknown banks belonging to the credit facility leak information to the market. Record sales are ordered for SemGroup Energy Partners, the publicly-traded subsidiary of SemGroup, the following day. SEC is investigating the leak.
July 17, 2008:
The stock for SemGroup Energy Partners, a publicly-traded master-limited partnership whose general partner is a subsidiary of SemGroup, falls by more than 50 percent in a day to a value of $11 a share. More than 5 million shares of stock trade hands – much of it before Moody’s Investors Service downgrades SemGroup’s default and unsecured debt ratings by several levels. Fitch Ratings also downgrades about $2.6 billion in debt held by SemGroup and two of its other private subsidiaries, SemCrude LP and SemCAMS Midstream Co. Fitch analysts question whether SemGroup can access adequate funds to cover anticipated margin calls related to its price hedges of oil inventories. J. Aron demands adequate assurances from SemGroup. Late the same day, after the markets close, SemGroup discloses it is considering filing for bankruptcy.
July 18, 2008:
SemGroup’s board, led by Riverstone/Carlyle members, suspends founder Tom Kivisto, and names Terry Ronan as acting CEO and president. The board hires Alex Partners Group and Blackstone Advisory Group to assess the situation. Kivisto also resigns during the same week from Tulsa-based BOK Financial Corp., parent of Bank of Oklahoma.
July 20, 2008:
J. Aron payment is due to SemGroup. Producers’ payments are due from SemGroup for June production, but are withheld by J. Aron under the terms of the fatal offset payment amendment authored by J. Aron and signed by SemGroup on June 12, 2008.
July 21, 2008:
J. Aron delivers a notice of default to SemGroup, claiming it is owed $350 million in paper trading losses. It is estimated that J. Aron’s profit on these trades is now $880 million. BP also fails to pay for oil it agreed to buy, asserting a setoff. SemGroup decides to propose in its bankruptcy petition to sell off its subsidiary companies “to maximize value” for creditors. SemGroup tells producers they will be paid by SemGroup if J. Aron and BP pay what they owe the Tulsa-based company. The worst-case scenario is now being realized.
July 22, 2008:
Bankruptcy petition is filed by Ronan, charging unauthorized trading by SemGroup. Sources find this claim dubious, given that Ronan was with the financial team signing every Friday to the banks that SemGroup was in compliance. Published reports say the company proposes in its bankruptcy petition to sell off its subsidiary companies “to maximize value” for creditors.
July 23, 2008:
BOK Financial reports it expects to take $71 million in charge against its second-quarter earnings related to SemGroup loans and contracts. BOK then reports a $19.4 million gain on these same trades in third quarter. Also, published reports say the U.S. Attorney in Oklahoma City and the Securities and Exchange Commission open investigations into SemGroup. The regulators seek documents and information about the company’s cash-flow problems and its hedging “mistakes”.(6) Alaska Senator Ted Stevens states that “Americans are being taken advantage of by … speculators right here in our own country.”
July 24, 2008:
Published reports say that General Electric Capital Corp. and PE-Pipeline Service make a filing in SemGroup’s bankruptcy case claiming that SemCrude Pipeline, a subsidiary of SemGroup, took $54 million intended to help pay for a pipeline it was supposed to build and instead sent it to SemGroup. GE hired PE-Pipeline Services to take over the job.
A blog on the Website of 1440 Wall Street, written by “StockJockey”, questions how much of the recent changes in oil prices can be tied to trading activities involving SemGroup.(7)
July 25, 2008:
Published reports say that Bank of America sues Kivisto for $12.9 million after he defaults on a personal loan secured by his trust’s interest in SemGroup. (8)
An article published in the New York Times reports that Washington commodity regulators accuse a Dutch trading company, Optiver Holding, Optiver US and Optiver VOF of Amsterdam, of manipulating the prices of crude oil, heating oil and gasoline over an 11-day period in 2007.(9)
July 29, 2009
Alaska Senator Ted Stevens is indicted for false statements on financial disclosure forms. He is later convicted.
July 30, 2008:
RZB Finance LLC makes a filing in SemGroup’s bankruptcy case that claims the company engaged in unauthorized, speculative trading, published reports say. The trading was disclosed by financial advisers for RZB Finance, the petition says. SemGroup officials declined to comment on the claims. (10)
July 31, 2008:
The Tulsa-based National Association of Royalty Owners calls in published article for Oklahoma royalty owners to file liens against SemGroup if they aren’t getting paid.(11)
During the same week, SemGroup Energy Partners vows in a published report to continue doing business with producers as a midstream company that provides oil hauling and storage services. The company boasts 6.7 million barrels of oil storage capacity, and another 6 million barrels of storage capacity for liquid asphalt cement. (12)
August 12, 2008:
J. Aron writes an Oklahoma producer denying it purchased oil from SemCrude in June and July when it actually purchased $435 million.
The U.S. trustee overseeing the bankruptcy case requests an examiner for SemGroup’s energy trading program. (14)
August 15, 2008:
SemGroup Energy Partners reveals in an SEC filing that it may not be able to survive the bankruptcy of SemGroup, its parent company, after all.(15)
August 20, 2008:
SemGroup Energy Partners holds a business update conference call, but its executives decline to answer questions, citing “various legal issues.”(16)
A post on The Coltons Point Times notes that Goldman announced on April 1 that it expects oil prices will rise to $149 a barrel before the end of the year. The price is hovering around $112.00. Why is Goldman trying to push oil prices higher, the column asks. Does it have anything to do with the fact Goldman is an equity owner in the oil futures market, is the stock broker for the ICE futures market, manages institutional funds with substantial oil investments, participates in energy swaps to help manipulate the oil prices, and has consistently used its position and analysts to influence the oil market? (17)
October 17, 2008:
The Bankruptcy Court enters its Procedures Order, setting up the procedure to determine the lien priority between Banks and Producers. Semgroup/Riverstone/Goldman did not anticipate the Producers’ resistance in the bankruptcy.
October 27, 2008:
Tom Kivisto, SemGroup’s co-founder, is fired by the company, his attorney announces. The same week, the Securities Exchange Commission serves SemGroup with a subpoena for records.
October, 2008:
J. Aron enters settlement with SemGroup to pay $89 million and get a blanket release of all other claims (set off $350 million in trading losses) against the $435 million in oil purchased.
November, 2008:
SemGroup files motion to approve settlement in bankruptcy court, but later withdraws it after drawing opposition from the producers.
December, 2008:
Two Oklahoma producers file suit against J. Aron to foreclose their liens on the proceeds held by J. Aron in Oklahoma.
December 15, 2008:
John Catsimatidis, owner of the Red Apple Group in New York, launches a bid to assume control of SemGroup. Catsimatidis proposes to reorganize the company, rather than to just sell off its assets to pay down its debt.
January 6, 2009:
The bankruptcy court refuses to restrain lawsuits brought in Oklahoma in the Eastern District and Northern District against J. Aron and BP by Oklahoma producers seeking to recover proceeds withheld by these companies from SemGroup. SemGroup brings in an action for TRO. Why is SemGroup acting on behalf of J. Aron and BP?
February 13, 2009:
A published report says SemGroup filed a lawsuit against John Catsimatidis, claiming the New York billionaire tried to get around bankruptcy court rules by trying to meet with company leaders secretly, and by providing a “hot-line” for employees to contact him. Catsimatidis shrugs off the lawsuit.(18)
February 18, 2009:
Unsecured Creditors Committee in SemGroup’s bankruptcy case and SemGroup sue Tom Kivisto, claiming he improperly used April funds to provide more than $70 million in bonuses for himself and co-founder Greg Wallace during a five-year period. SemGroup Energy Partners announces its stock is de-listed by NASDAQ, effective Feb. 20.(19)
February 26, 2009:
Published reports say SemGroup did not receive a viable bid for SemMaterials. A potential deal to sell the assets to SemGroup Energy Partners is announced. Catsimatidis says he was able to get financing to bid on the assets, but wanted additional money as a cushion. Catsimatidis says negotiations on his plans to reorganize the company are ongoing.(20)
March 6, 2009:
Vess Oil Corp. confirms that it bought Kansas-based oil and gas leases for $6 million from a company owned by Tom Kivisto about a month after SemGroup filed for bankruptcy, a published story says. The sale is referred to in the suit filed against Kivisto by SemGroup and the Unsecured Creditors Committee in SemGroup’s bankruptcy case.(21)
March 9, 2009:
Terry Ronan, SemGroup’s CEO, tells employees in a memo that the company may seek to reorganize itself as a publicly-traded entity that stores and distributes crude oil. At the same time, it will continue to move assets and operations to SemGroup Energy Partners, he says.(22)
March 12, 2009:
The judge in SemGroup’s bankruptcy case approves a deal allowing the company to transfer SemMaterials to SemGroup Energy Partners, settling the latter’s claims in the bankruptcy case against its former parent company.
March 17, 2009:
Forbes.com posts an article revealing Goldman’s $12.9 billion payment from American Insurance Group, which got the money to make the payment from federal taxpayers. The payment raises speculation about a potential conflict of interest and favoritism. (23)
March 20, 2009:
Forbes.com posts an article questioning whether Goldman’s margin calls on AIG wrecked that company.(24)
March 25, 2009:
Forbes.com posts its article, “Did Goldman Goose Oil?”, questioning whether Goldman deliberately manipulated the market to push the price of oil to record highs, wrecking SemGroup-based SemCrude in the process.(25)
March 26, 2009:
The Tulsa World reports that a group of Oklahoma oil suppliers owed money by SemGroup filed a federal class-action lawsuit on March 25, seeking nearly $150 million from a Goldman subsidiary which ultimately bought that oil and gas from the bankrupt SemGroup energy company.
The complaint claims that J. Aron & Co. also is responsible for SemGroup’s lack of payment to producers. J. Aron originally owed $434 million to SemGroup for oil and gas purchases, but agreed to pay only $89.8 million, court records show.
A blog published on the Website 1440WallStreet.com by “StockJockey” says recent questions raised about SemGroup’s demise echo those raised by U.S. Representative Bart Stupak, D-Michigan, who said a committee he chaired was looking at energy trading issues involving Goldman and Morgan Stanley. While Stupak stressed his committee had no evidence of illegality, he did say it appeared the traders were “taking advantage where no one has ever looked before.” But the investigation, the blogger notes, died.(26)
March 27, 2009:
The Journal Record reports three Oklahoma companies that said they sold oil and gas valued at more than $143 million to SemGroup shortly before it filed for bankruptcy are suing the company that bought the production from April.
IC-CO Inc., WEOC Inc. and Reserve Management Inc. contend that J. Aron & Co. received at least $434.78 million in production or proceeds, including production the plaintiffs sold to SemGroup, but has used purported contract set-offs of $345.5 million, reducing the amount to $89.7 million, which they say SemGroup has agreed to accept in satisfaction.
A blog posted by Adam on “The Accidental Hunt Brothers” reposts a portion of the Forbes.com article, and he adds it appears SemGroup was correct in assuming prices for oil were too high, yet still got squeezed out of its short positions by speculators who made oil prices spike even higher.
“They probably called the operation Semsqueezy,” agrees another blogger, Bob van der Valk, talking about Goldman’s perceived role in wrecking April.(27)
March 30, 2009:
SemGroup finally sues J. Aron and BP in Bankruptcy Court seeking payment of the undisputed amounts that are due, but not for the funds setoff by these parties.. New counsel is used by SemGroup, since its regular counsel, Weil Gotshals, also represents J. Aron and BP.
March 31, 2009:
StockJockey posts on 1440WallStreet.com, talking about how an oil trader from a Swiss energy conglomerate has left the firm to start his own hedge fund. The trader, Andrew Serotta, says he was asked to leave the firm in the wake of a decision by it to focus on physical contracts for oil, rather than speculative ones.
Vitol made that decision after the Commodities Futures Trading Commission ran its books and determined the company was more of a speculator, and not lining up the actual delivery of oil through its contracts. In July, the firm held 11 percent of all the oil contracts on the New York Mercantile Exchange, commodities brokers learned.
StockJockey sees this as more evidence of the “commodity super-cycle” that involved
speculative trading, compounded by frenetic activity in the derivatives markets, which overwhelmed the physical markets, “leading to the biggest booms and busts we have ever witnessed in a wide range of commodities.”
Now, the Commission is reporting that financial firms speculating for their clients account for about 81 percent of the oil contracts on NYMEX, a far bigger share than previously had been stated, he notes.
Meanwhile, StockJockey reports that Louis Freeh has wrapped up his investigation into SemGroup’s collapse. And he also mentions the class action suit filed in Oklahoma against the commodity trading arm of Goldman.
Unfortunately, he writes, the collapse in oil prices is killing growth in supply, and worries that a sustained upturn in global growth could light a fire under crude.
“Enjoy $2 gasoline, it probably won’t last forever,” he writes.(28)
April 1, 2009:
Three heads of Goldman Asset Management, the firm’s quantitative investment group, left the firm on Tuesday, announcing their retirement. The three men, including Ray Iwanowski and Mark Carhart, ran Goldman’s Global Alpha hedge fund, according to Clusterstock, which broke the news. Giorgio De Santis is also leaving Goldman.
Bloomberg News confirmed their departure with Goldman, which declined further comment. Clusterstock said there was speculation inside Goldman about the underlying reasons for the departure of the three men. (29)
April 4, 2009:
Atlantic.com publishes “The Quiet Coup” by Simon Johnson detailing Wall Street and Goldman’s involvement at the highest levels of the United States Government and the evolution of “policy by deal”, where the fear of Systemic Failure caused the government to broker deals (Bear Stearns to JPMorgan, Merrill to Bank of America, AIG bailouts). (30)
April 7, 2009
Market Watch notes that Goldman’s oil trading desk is linked to the failure of SemGroup.(31)
April 9, 2009
A federal judge sets aside the conviction of former Sen. Ted Stevens, and also initiates a criminal contempt proceeding against government lawyers who prosecuted the 85-year-old Alaska Republican. “In 25 years on the bench, I have never seen anything approach the mishandling and misconduct in this case.” (32)
References:
1.) “Did Goldman Goose Oil?”, http://www.forbes.com/forbes/2009/0413/096-sachs-SemGroup-goldman-goose-oil.html
2.) IC-CO Inc. v. J. Aron & Company, U.S.D.C., Eastern District of Oklahoma, Case No. CIV-09-122-RAW, filed March 25
3.) http://www.sec.gov/Archives/edgar/data/1392091/000119312507050936/ds1.htm
4.) “Oil Mergers, Manipulation and Mirages: How Eroding Legal Protections and Lax Regulatory Oversight Harm Consumers,” Public Citizen’s Energy Program, April 2007
5.) http://in.reuters.com/article/businessNews/idINIndia-31106620071224
6.) “SEC Investigating SemGroup,” Tulsa World, July 25, 2008
7.) http://www.1440wallstreet.com/index.php/site/comments/SemGroup_roils_oil_market_ ...
8.) “SemGroup timeline,” The Oklahoman, July 26, 2008
9.) “Regulators Say Company Manipulated Oil Market,” New York Times, July 25, 2008
10.) “Lender claims trades were improper,” The Oklahoman, July 31, 2008
11.) “Royalty owners due payment urged to file SemGroup liens,” The Oklahoman, August 1, 2008
12.) “Staying alive,” The Oklahoman, August 3, 2008
13.) “BOK reports SemGroup loss impact,” The Oklahoman, August 13, 2008
14.) “SemGroup Facing Chapter 11 Fraud Probe,” CFO.COM, August 13, 2008
15.) http://www.sec.gov/Archives/edgar/data/1392091/000114036108019520/doc1.htm
16.) “SemGroup offspring eyes shaky future,” The Oklahoman, August 21, 2008
17.) http://coltonspointtimes.blogspot.com/2008/08/goldman-sachs-again-tries-to-prop-up.html
18.) “SemGroup sues over bid,” Tulsa World, February 13, 2009
19.) http://www.sec.gov/Archives/edgar/data/1392091/000139209109000004/form8k.htm
20.) “SemGroup seeks permit to liquidate subsidiary,” The Oklahoman, February 24, 2009
21.) “Questions follow lease sale,” The Oklahoman, March 7, 2009
22.) “SemGroup CEO hints at restructuring,” The Oklahoman, March 10, 2009
23.) http://www.forbes.com/feeds/afx/2009/03/17/afx6179096.html
24.) http://www.forbes.com/feeds/afx/2009/03/20/afx6194804.html
25.) http://www.forbes.com/forbes/2009/0413/096-sachs-SemGroup-goldman-goose-oil.html
26.) http://www.1440wallstreet.com/index.php/site/comments/the_other_crime_of_the_century ... March 26, 2009
27.) http://accidentalhuntbrothers.com/?p=213, March 27, 2009
28.) http://www.1440wallstreet.com/index.php/site/comments/ex_vitol_oil_trader_to_launch_hedge_fund_as_SemGroup_investigation_wraps_up/, March 31, 2009
29.) http://dealbook.blogs.nytimes.com/category/revolving-door/, April 1, 2009
30.) “The Quiet Coup,” The Atlantic Online, http://www.theatlantic.com/doc/200905/imf-advice, May 2009
31.) “Government Sachs is in Control”, Market Watch, April 7, 2009, http://www.marketwatch.com/news./story/goldman-sachs-bailout-bonanza/story.aspx?quid=584-4E40-B928-80ClbDECBLOS
32.) “Judge Orders Investigation of Stevens Prosecutors,” New York Times, April 9, 2009 http://www.nytimes.com/2009/04/08/us/politics/08stevens.html?_r=1&partner=rss&emc=rss&src=ig
For more information, contact:
John Tucker, attorney for Thomas Kivisto, 918-582-1173
John Catsimatidis, New York businessman trying to reorganize SemGroup, 202-956-5803; email: JACNY@aol.com.
Lee Levinson, attorney representing plaintiffs in the class action suit filed in March in U.S. District Court, Eastern District of Oklahoma. 918-492-4433; email: leelevinson@sbcglobal.net.
Tyson Slocum, director of Public Citizen’s Energy Program, tslocum@citizen.org
The Manipulation of World Oil Prices by Goldman Sachs
(An Independent Review)
The attorney for the former chief executive officer of Tulsa-based SemGroup LP, the man who’s leading an attempt to take the company over and some Oklahoma-based oil producers are asking whether a national commodities broker is responsible for wrecking the midstream company, and for affecting the entire world financial system through the manipulation of oil prices.
Forbes magazine posted an article titled “Did Goldman Goose Oil?” on its Website on March 25, 2009 about the allegations, noting that SemGroup, a $14 billion (sales) private firm once led by chief executive Tom Kivisto, had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by Kivisto.(1) The same story, “Black Gold, How Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant SemGroup”, is the cover story of the April 13, 2009 edition of Forbes.
It reads, “When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant SemGroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla.”
The Forbes article goes on to report that SemGroup’s short positions amounted to the equivalent of 20 percent of the nation's crude oil inventories. With the credit crunch eliminating any hope of meeting a $500 million margin call, SemGroup filed for bankruptcy on July 22.
It also reports that numerous people familiar with the events insist that Citibank, Merrill Lynch and especially Goldman Sachs (Goldman) had knowledge about SemGroup's trading positions from their vetting of an ill-fated $1.5 billion private placement deal last spring
John Catsimatidis , the billionaire grocer and oil refiner wanting to buy the company and reorganize it, calls what happened a “$500 billion fraud on the people of the world.”
“Nothing's been proven, but if somebody has your book and knows every trade, it would not be difficult to bet against that book and put the company into a tremendous liquidity squeeze," John Tucker, the Tulsa attorney who represents Tom Kivisto, is quoted as saying in the Forbes article.
Some sources say their information suggests the financiers believed SemGroup in fact was responsibly managing its assets and trading policies, even up to a few weeks before its collapse. Indeed, sources suggest the company did not fail until after other supporting financial institutions, namely Bank of America, Merrill Lynch and Goldman, backed away from plans they had made with the company to support its business plan.
Similar claims were recently made by Oklahoma producers who filed a class action suit against Goldman in U.S. Federal Court in Muskogee. (2)
What follows is an independently derived timeline compiled from numerous independent and published sources including, but not limited to court records, blog sites, published stories, books, Congressional records, and other published materials. All of these sources had significant impact on the development of this timeline.
September, 1998:
Goldman offers to assist Long-Term Capital Management, who is hemorrhaging money due to its volatility trades. The following is Roger Lowenstein’s account of what occurred from When Genius Failed:
The two firms quickly struck a deal, conditional on Goldman’s raising the money and on Long-Term’s passing an inspection, a customary process. Goldman had to move fast, before any more of Long-Term’s capital was lost. The week of September 14, the fund handed over mountains of files …. A Goldman team peppered the arbitrageurs with questions. Then a half-dozen lawyers from Sullivan & Cromwell, Goldman’s outside law firm, marched in and subjected the emissaries from Long-Term to a torturous grilling.
In Greenwich, Goldman’s sleuths, who had the run of the office, left no stone unturned. Long-Term’s staff couldn’t keep track of who the Goldman people were, so many were rummaging through the hedge fund’s files. A key member of the Goldman team was Jacob Goldfield, a lanky and brilliant but abrasive trader. According to witnesses, the headstrong Goldfield appeared to be downloading Long-Term’s positions, which the fund had so zealously guarded, from Long-Term’s own computers directly into an oversized laptop (a detail Goldman later denied). Meanwhile, Goldman’s traders in New York sold some of the very same positions. At the end of one day, when the fund’s positions were worth a great deal less, some Goldman traders in Long-Term’s offices sauntered up to the trading desk and offered to buy them. Brazenly playing both sides of the street, Goldman represented investment banking at its mercenary ugliest. To J.M. and his partners, Goldman was raping Long-Term in front of their very eyes.
Long Term Capital Management is eventually bailed out by a consortium of banks, including Goldman, that is put together by the Fed, who fears a Systemic Failure of the markets without a rescue.
2000:
Congress passes Commodity Futures Modernization Act, which deregulates over the counter (OTC) derivative energy trading.
2001 to Present:
Trading of OTC energy derivative skyrockets on the Intercontinental Exchange (ICE), where founding members include Goldman, Morgan Stanley and BP.
June, 2003:
Riverstone/Carlyle purchases controlling stock of Magellan Midstream Partners and its refined product pipeline system.
April, 2004:
Riverstone/Carlyle becomes general partner of Buckeye Partners and its pipeline systems in northeast.
December, 2004:
Riverstone/Carlyle acquires a portion of SemGroup, eventually owning 29.3 percent of the company and having a third of the seats – two – on SemGroup’s Board of Directors. Members of Riverstone’s Board of Directors, meanwhile, are two former Goldman managing directors, and the former managing director of BP. Riverstone’s two owners, Pierre Lapeyre and David Leuschen, are both formerly of Goldman and are Riverstone’s two original representatives on SemGroup’s Board of Directors.
2005:
Goldman and Kelso & Co. purchase stake in Coffeyville, Kansas refinery.
2006:
Bank of America joins the $1 billion SemGroup credit facility and assumes lead from BNP Paribas, taking a $50 million share of the facility. Terry Ronan is Bank of America’s account officer to SemGroup.
August, 2006:
Riverstone/Carlyle, Goldman and others acquire Kinder Morgan, Inc.
Late 2006:
Terry Ronan jumps to Merrill Lynch and takes his entire team, except for Bert Balboni, who becomes the Bank of America account officer for SemGroup. Balboni travels to Tulsa to keep Bank of America as the credit facility’s lead bank. Bank of America is concerned that Merrill Lynch will be invited by SemGroup to become the new lead.
Also, Andrew Ward and Bartow Jones assume Riverstone/Carlyle’s seats from Lapeyre and Leuschen.
SemGroup’s over-the-counter trading partner is ConAgra Foods. The deal with ConAgra requires little in the way of margin calls, as ConAgra trades storage and the purchase of physical crude from SemCrude as the offset to posting SemGroup margins.
February, 2007:
SemGroup moves wholly-owned assets into the public sector, creating a publicly-traded subsidiary, SemGroup Energy Partners, underwritten by Citibank and Merrill Lynch. (3)
April, 2007:
Tyson Slocum, director of the Public Citizen’s Energy Program, releases a paper titled “Oil Mergers, Manipulation and Mirages: How Eroding Legal Protections and Lax Regulatory Oversight Harm Consumers”, detailing how consumers are being harmed by lax regulatory oversight and eroding legal protections related to the trading of oil and natural gas as commodities.
Slocum notes in his article that a key to the problem is the deregulation of commodities trading markets. The creation of Rule 35 by the U.S. Commodity Futures Trading Commission in 1992 exempted certain energy trading contracts from requiring that they be traded on a regulated exchange and allowed for large energy futures companies such as Enron and Goldman to trade energy futures between themselves outside of regulated exchanges. The “Enron Loophole” also exempted those trades from anti-fraud provisions of the Commodity Exchange Act. A similar rule created in 2003 exempted large, commercial participants trading various energy contracts in the same way. These steps provide new opportunities for oil companies and financial firms to manipulate prices, he writes.
Slocum adds that an emerging trend of energy traders buying into and taking over companies that control energy infrastructure assets, such as pipelines and storage facilities, provide the traders with additional “insider” information that can help them manipulate markets.
He notes a deal in August 2006, where Goldman, AIG and Carlyle/Riverstone announce a $22 billion acquisition of Kinder Morgan Inc. Kinder Morgan Inc. controlled 43,000 miles of crude oil, refined products and natural gas pipelines, in addition to 150 storage terminals. Slocum notes Goldman and other investment banks are acquiring these energy assets for informational purposes, for an “insider’s peek into the physical movement of energy products unavailable to other traders.
Congress added to the problem by deregulating energy trading exchanges in December 2000, which exempted electronic exchanges like those set up by Enron from regulatory oversight.
These changes were made despite a report from the President’s Working Group on Financial Markets, comprised of Treasury Secretary Lawrence Summers, Federal Reserve Chairman Alan Greenspan, Chairman of the Securities and Exchange Commission Arthur Levitt and Commodity Futures Trading Commission Chairman William Rainer, which concluded that energy trading must not be deregulated.
Slocum says trading on these unregulated exchanges has skyrocketed. He uses the Intercontinental Exchange, founded by Goldman, BP, Shell, and Totalfina Elf as an example. This exchange became a publicly-traded corporation in 2005. In 2006, it traded 93 million contracts, a 120 percent increase over its 2005 trades. Its trades of $12.6 million contracts just in January 2007 represented a 166 percent increase from the trades it handled the same time a year before.
Slocum cites a bipartisan investigation released in 2006 by the U.S. Senate’s Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs, which blamed unregulated energy trading for adding as much as $25 to the price for a barrel of oil at the time.
“Oil companies, investment banks and hedge funds are exploiting the lack of government oversight to price-gouge consumers and make billions of dollars in profits”, Slocum writes. (4)
Late summer, early fall 2007:
ConAgra determines to get out of energy business, and later sells its energy unit. SemGroup has to replace the capacity traded with ConAgra by looking to NYMEX markets. This was not in SemGroup’s original business plan due to the cost of margin calls.
September, 2007:
Coffeyville Refinery suffers $89 million loss due to BP hedges which required operations, and flood shut down refinery. Counterparty is J. Aron.
November 19, 2007:
SemGroup enters OTC trading agreement with J. Aron, the commodities trading division of Goldman.
December, 2007:
GE Energy buys the Merrill Lynch unit employing Ronan.(5) He is recruited by SemGroup as a financial officer, under Greg Wallace, SemGroup’s Chief Financial Officer.
February 4, 2008:
SemGroup meets with Bear Stearns to build an over-the-counter trading account to replace ConAgra. Agreement closes, but then Bear Stearns goes bankrupt in March.
It was no secret at Bear Stearns what Goldman would do with information it received. Early in the second week of March that killed Bear Stearns, Goldman called to offer “help”. In his book, House of Cards, William D. Cohen discusses Ben Stearns’ reaction:
If Goldman was calling to be “helpful,” Molinaro and Upton thought, that meant everyone on Wall Street knew that Bear Stearns was in serious trouble. “So that’s taps,” Upton said. “That’s the trumpet playing because all that means is they want to come in and see our positions so they can trade against us and make money.”
March 6, 2008:
Meetings begin in Tulsa between SemGroup and Goldman’s Tradable Unregistered Equity division to raise perhaps as much as $1.5 billion in capital for SemGroup, which typically was thin on equity and working capital but long on enterprise projects.
March 13, 2008:
SemGroup representatives travel to New York to meet with Goldman representatives.
April 3 and 4, 2008:
Goldman meets with SemGroup in Tulsa to discuss what banks should be included in an offering and to develop a time line, a structure, and a presentation design of SemGroup’s Tradable Unregistered Equity vehicle, GS True.
Late April, 2008:
SemGroup provides Goldman with all its NYMEX and OTC positions for the entire company. Goldman’s due diligence team is provided the opportunity to examine all trading records, closed and existing, and to follow the trades. Goldman must load all trades into its system in order to verify through a “stress test” mark to market calculations that SemGroup reports to the bank group each Friday. The stress test was to determine what would happen to the book with a $10 change in the price of oil.
The purpose of this exercise is to prove to Goldman the validity, viability and veracity of how SemGroup reported its positions to the bank group and to verify the positions. Goldman advises SemGroup that it provided all data set to a third industry trader for third-party verification.
Pursuant to SemGroup’s own internal trading rules, all trades were to be delta neutral on a daily basis. This required SemGroup to take long or short positions at the end of every day, depending on the closing price. Goldman now knows SemGroup’s trades, knows SemGroup’s volumes and knows SemGroup’s own rules.
Goldman reports back to Brent Cooper, SemGroup’s controller or Greg Wallace, CFO, that verifications were all positive. SemGroup has cleared a big hurdle for moving forward on its financing plans.
May, 2008:
Margin calls begin to grow markedly and are problematic for SemGroup as the price of oil begins to skyrocket. These margin calls become increasingly painful. They are a result of increasing volatility and high prices believed to have been driven by market manipulation and predatory trading.
The increasing volatility would be a direct result of Goldman, through J. Aron, trading ahead of SemGroup’s book, because it knew what SemGroup would do at the end of every day to attempt to comply with its rules and stay delta neutral. The short squeeze is on.
May 6, 2008
Goldman’s Arjun Murti calls for oil price spike of $150-200 a barrel.
May 19, 2008:
Goldman brings in CitiBank and Merrill Lynch for an in-depth trading strategy review with Tom Kivisto and the trading group. After an extensive question and answer session, everyone gives their blessings, and so the last hurdle is cleared for moving forward with SemGroup’s financing plans. Organizers plan to start the GS True road show May 27.
CitiBank and Merrill Lynch are to be on the “book cover” with Goldman as lead.
Goldman personnel on the deal include Bill Wicker, managing director; Lou Talarico, vice president; Eric Batchekter, vice president; Michael Sachs, associate; Christina Scalzo, analyst; Andrew Lauk, analyst; John Daly, managing director; Gregg Weinstein, managing director; Olympia McNerney, associate; Horsha Rajamoni, analyst; Daniel Shetler, managing director; Karen Canisius, vice president; Erin Cavanagh, analyst; Richard Cohn, vice president; and Bruce Schwartz, vice president. Baker Botts, LLP and Sullivan and Cromwell, LLP are counsel, with PricewaterhouseCoopers as accountants.
The financiers understand and approve SemGroup’s trading strategy, how it makes money and what kinds of positions it uses, thus proving to itself (Goldman) that there is no “black box” used in SemGroup success.
Goldman now realizes the company is successful because of a well-planned strategy of long-term supply and lots of storage, driving the optionality of its positions. SemGroup used the strategy since its inception.
SemGroup now has four large, sophisticated, and knowledgeable energy traders who have signed off on and verified that SemGroup is in full compliance with all bank reporting requirements and risk management policies.
May and June, 2008:
SemGroup begins discussions with Bank of America regarding an “accordion” type credit facility that grows and contracts depending on the volatility of the oil market. Bank of America is initially interested.
June, 2008:
On June 5, with no news catalysts, oil futures spiked $5 a barrel, the biggest one-day jump since the outbreak of the first Gulf war. The next day, on no news, the price jumped another $10 to $138. Volatility increases daily. Short squeeze continues.
June 9, 2008:
SemGroup management with Lou Talarico of Goldman and others make second road trip to Mideast to try and tie up an anchor equity player, and return successful.
June 12, 2008:
SemGroup and J. Aron enter letter agreement regarding offset payment obligations. A fatal move for SemGroup.
June 26, 2008:
SemGroup management and Goldman travel to London to finalize the arrangements with representatives of its large Mideast anchor player it found earlier in June and to add partners to the GS True platform. The commitment made by the player is $500 million in cash equity.
Goldman represents SemGroup; Lehman Brothers represents the Mideast player; and they are to write final agreement.
Goldman then advises SemGroup that the road show will start again after July 4 holiday.
But after the holiday, Goldman stops returning phone calls to SemGroup. with no reasons provided.
Late June, 2008:
Bank of America advises SemGroup that it is not going to renew letters of credit, which directly impacts the company’s liquidity to post margins and its ability to purchase oil.
June and July, 2008:
J. Aron bought $435 million in oil from SemGroup, and BP bought $175 million in oil from the Tulsa-based company.
SemGroup, meanwhile, continues to use more of its line of credit to pay margin calls ($1.96 billion in first quarter), double what was done in previous quarter.
Margin calls increase as volatility goes to record levels, as does the outright price for oil. To sources, it appears someone clearly is squeezing SemGroup’s position.
Early July, 2008:
Riverstone/Carlyle shows no interest in pursuing new equity for SemGroup. Riverstone/Carlyle had Goldman’s analysis from the GS True offering and thereby knows the exact worth of the company, then in excess of $1.3 billion. Riverstone also has knowledge that Bank of America will not extend letters of credit. Are they waiting to acquire the pipeline and tankage assets of SemGroup with Goldman on the backside, when the short squeeze is over and SemGroup’s liquidity is exhausted?
July 9, 2008:
Wallace, Ronan and others are in discussions with Balboni about extending lines of credit. Balboni asks what is SemGroup’s worst-case scenario, and is told that if J. Aron and BP don’t pay what they owe for June and July purchases, producers cannot be paid. The account is turned over to Bank of America workout group later that afternoon. What was the justification for this rash decision?
July 12, 2008:
The price of oil peaks at $147.50 a barrel. Volatility at all-time high.
July 15, 2008:
Beginning in late June, the company begins negotiating with Barclays to do a joint venture on SemGroup’s book, which has grown too large for SemGroup to handle alone. When Bank of America refuses to renew letters of credit and sends accounts to workout, SemGroup has two choices: let individual trades run off and let NYMEX foreclose; or novate the book. Eerily reminiscent of what happened to Long-Term Capital Management 10 years before, NYMEX believes that the oil market (and possibly others) will Systemically Fail if SemGroup lets trades run off and requests the company consider novation. SemGroup offers book to three parties; only Barclays can step up and take book in 48 hours. On July 15, 2008, entire book is sold to Barclays for a payment between $75 and $100 million by SemGroup for a novation, resulting in a $2.4 billion mark to market loss for SemGroup. This is a surprise to Riverstone and Goldman. They paid Barclays to reduce the losses incurred due to the actions of Goldman Sachs.
In the second quarter 2008, Chesapeake recorded a $3.4 billion mark to market loss on hedges; Newfield Exploration, $244 million loss; Anadarko Petroleum, $1.6 billion loss; Noble Energy, $144 million loss. These losses remain on paper until the accounts are settled. The next quarter, Chesapeake reported a $2.8 billion gain on the same hedges.
Does market immediately settle after short squeeze is over and Barclays buys the book and Goldman realizes it lost its leverage because its short squeezes no longer affect SemGroup?
July 16, 2008:
Meeting of syndicate banks is held, and unknown banks belonging to the credit facility leak information to the market. Record sales are ordered for SemGroup Energy Partners, the publicly-traded subsidiary of SemGroup, the following day. SEC is investigating the leak.
July 17, 2008:
The stock for SemGroup Energy Partners, a publicly-traded master-limited partnership whose general partner is a subsidiary of SemGroup, falls by more than 50 percent in a day to a value of $11 a share. More than 5 million shares of stock trade hands – much of it before Moody’s Investors Service downgrades SemGroup’s default and unsecured debt ratings by several levels. Fitch Ratings also downgrades about $2.6 billion in debt held by SemGroup and two of its other private subsidiaries, SemCrude LP and SemCAMS Midstream Co. Fitch analysts question whether SemGroup can access adequate funds to cover anticipated margin calls related to its price hedges of oil inventories. J. Aron demands adequate assurances from SemGroup. Late the same day, after the markets close, SemGroup discloses it is considering filing for bankruptcy.
July 18, 2008:
SemGroup’s board, led by Riverstone/Carlyle members, suspends founder Tom Kivisto, and names Terry Ronan as acting CEO and president. The board hires Alex Partners Group and Blackstone Advisory Group to assess the situation. Kivisto also resigns during the same week from Tulsa-based BOK Financial Corp., parent of Bank of Oklahoma.
July 20, 2008:
J. Aron payment is due to SemGroup. Producers’ payments are due from SemGroup for June production, but are withheld by J. Aron under the terms of the fatal offset payment amendment authored by J. Aron and signed by SemGroup on June 12, 2008.
July 21, 2008:
J. Aron delivers a notice of default to SemGroup, claiming it is owed $350 million in paper trading losses. It is estimated that J. Aron’s profit on these trades is now $880 million. BP also fails to pay for oil it agreed to buy, asserting a setoff. SemGroup decides to propose in its bankruptcy petition to sell off its subsidiary companies “to maximize value” for creditors. SemGroup tells producers they will be paid by SemGroup if J. Aron and BP pay what they owe the Tulsa-based company. The worst-case scenario is now being realized.
July 22, 2008:
Bankruptcy petition is filed by Ronan, charging unauthorized trading by SemGroup. Sources find this claim dubious, given that Ronan was with the financial team signing every Friday to the banks that SemGroup was in compliance. Published reports say the company proposes in its bankruptcy petition to sell off its subsidiary companies “to maximize value” for creditors.
July 23, 2008:
BOK Financial reports it expects to take $71 million in charge against its second-quarter earnings related to SemGroup loans and contracts. BOK then reports a $19.4 million gain on these same trades in third quarter. Also, published reports say the U.S. Attorney in Oklahoma City and the Securities and Exchange Commission open investigations into SemGroup. The regulators seek documents and information about the company’s cash-flow problems and its hedging “mistakes”.(6) Alaska Senator Ted Stevens states that “Americans are being taken advantage of by … speculators right here in our own country.”
July 24, 2008:
Published reports say that General Electric Capital Corp. and PE-Pipeline Service make a filing in SemGroup’s bankruptcy case claiming that SemCrude Pipeline, a subsidiary of SemGroup, took $54 million intended to help pay for a pipeline it was supposed to build and instead sent it to SemGroup. GE hired PE-Pipeline Services to take over the job.
A blog on the Website of 1440 Wall Street, written by “StockJockey”, questions how much of the recent changes in oil prices can be tied to trading activities involving SemGroup.(7)
July 25, 2008:
Published reports say that Bank of America sues Kivisto for $12.9 million after he defaults on a personal loan secured by his trust’s interest in SemGroup. (8)
An article published in the New York Times reports that Washington commodity regulators accuse a Dutch trading company, Optiver Holding, Optiver US and Optiver VOF of Amsterdam, of manipulating the prices of crude oil, heating oil and gasoline over an 11-day period in 2007.(9)
July 29, 2009
Alaska Senator Ted Stevens is indicted for false statements on financial disclosure forms. He is later convicted.
July 30, 2008:
RZB Finance LLC makes a filing in SemGroup’s bankruptcy case that claims the company engaged in unauthorized, speculative trading, published reports say. The trading was disclosed by financial advisers for RZB Finance, the petition says. SemGroup officials declined to comment on the claims. (10)
July 31, 2008:
The Tulsa-based National Association of Royalty Owners calls in published article for Oklahoma royalty owners to file liens against SemGroup if they aren’t getting paid.(11)
During the same week, SemGroup Energy Partners vows in a published report to continue doing business with producers as a midstream company that provides oil hauling and storage services. The company boasts 6.7 million barrels of oil storage capacity, and another 6 million barrels of storage capacity for liquid asphalt cement. (12)
August 12, 2008:
J. Aron writes an Oklahoma producer denying it purchased oil from SemCrude in June and July when it actually purchased $435 million.
The U.S. trustee overseeing the bankruptcy case requests an examiner for SemGroup’s energy trading program. (14)
August 15, 2008:
SemGroup Energy Partners reveals in an SEC filing that it may not be able to survive the bankruptcy of SemGroup, its parent company, after all.(15)
August 20, 2008:
SemGroup Energy Partners holds a business update conference call, but its executives decline to answer questions, citing “various legal issues.”(16)
A post on The Coltons Point Times notes that Goldman announced on April 1 that it expects oil prices will rise to $149 a barrel before the end of the year. The price is hovering around $112.00. Why is Goldman trying to push oil prices higher, the column asks. Does it have anything to do with the fact Goldman is an equity owner in the oil futures market, is the stock broker for the ICE futures market, manages institutional funds with substantial oil investments, participates in energy swaps to help manipulate the oil prices, and has consistently used its position and analysts to influence the oil market? (17)
October 17, 2008:
The Bankruptcy Court enters its Procedures Order, setting up the procedure to determine the lien priority between Banks and Producers. Semgroup/Riverstone/Goldman did not anticipate the Producers’ resistance in the bankruptcy.
October 27, 2008:
Tom Kivisto, SemGroup’s co-founder, is fired by the company, his attorney announces. The same week, the Securities Exchange Commission serves SemGroup with a subpoena for records.
October, 2008:
J. Aron enters settlement with SemGroup to pay $89 million and get a blanket release of all other claims (set off $350 million in trading losses) against the $435 million in oil purchased.
November, 2008:
SemGroup files motion to approve settlement in bankruptcy court, but later withdraws it after drawing opposition from the producers.
December, 2008:
Two Oklahoma producers file suit against J. Aron to foreclose their liens on the proceeds held by J. Aron in Oklahoma.
December 15, 2008:
John Catsimatidis, owner of the Red Apple Group in New York, launches a bid to assume control of SemGroup. Catsimatidis proposes to reorganize the company, rather than to just sell off its assets to pay down its debt.
January 6, 2009:
The bankruptcy court refuses to restrain lawsuits brought in Oklahoma in the Eastern District and Northern District against J. Aron and BP by Oklahoma producers seeking to recover proceeds withheld by these companies from SemGroup. SemGroup brings in an action for TRO. Why is SemGroup acting on behalf of J. Aron and BP?
February 13, 2009:
A published report says SemGroup filed a lawsuit against John Catsimatidis, claiming the New York billionaire tried to get around bankruptcy court rules by trying to meet with company leaders secretly, and by providing a “hot-line” for employees to contact him. Catsimatidis shrugs off the lawsuit.(18)
February 18, 2009:
Unsecured Creditors Committee in SemGroup’s bankruptcy case and SemGroup sue Tom Kivisto, claiming he improperly used April funds to provide more than $70 million in bonuses for himself and co-founder Greg Wallace during a five-year period. SemGroup Energy Partners announces its stock is de-listed by NASDAQ, effective Feb. 20.(19)
February 26, 2009:
Published reports say SemGroup did not receive a viable bid for SemMaterials. A potential deal to sell the assets to SemGroup Energy Partners is announced. Catsimatidis says he was able to get financing to bid on the assets, but wanted additional money as a cushion. Catsimatidis says negotiations on his plans to reorganize the company are ongoing.(20)
March 6, 2009:
Vess Oil Corp. confirms that it bought Kansas-based oil and gas leases for $6 million from a company owned by Tom Kivisto about a month after SemGroup filed for bankruptcy, a published story says. The sale is referred to in the suit filed against Kivisto by SemGroup and the Unsecured Creditors Committee in SemGroup’s bankruptcy case.(21)
March 9, 2009:
Terry Ronan, SemGroup’s CEO, tells employees in a memo that the company may seek to reorganize itself as a publicly-traded entity that stores and distributes crude oil. At the same time, it will continue to move assets and operations to SemGroup Energy Partners, he says.(22)
March 12, 2009:
The judge in SemGroup’s bankruptcy case approves a deal allowing the company to transfer SemMaterials to SemGroup Energy Partners, settling the latter’s claims in the bankruptcy case against its former parent company.
March 17, 2009:
Forbes.com posts an article revealing Goldman’s $12.9 billion payment from American Insurance Group, which got the money to make the payment from federal taxpayers. The payment raises speculation about a potential conflict of interest and favoritism. (23)
March 20, 2009:
Forbes.com posts an article questioning whether Goldman’s margin calls on AIG wrecked that company.(24)
March 25, 2009:
Forbes.com posts its article, “Did Goldman Goose Oil?”, questioning whether Goldman deliberately manipulated the market to push the price of oil to record highs, wrecking SemGroup-based SemCrude in the process.(25)
March 26, 2009:
The Tulsa World reports that a group of Oklahoma oil suppliers owed money by SemGroup filed a federal class-action lawsuit on March 25, seeking nearly $150 million from a Goldman subsidiary which ultimately bought that oil and gas from the bankrupt SemGroup energy company.
The complaint claims that J. Aron & Co. also is responsible for SemGroup’s lack of payment to producers. J. Aron originally owed $434 million to SemGroup for oil and gas purchases, but agreed to pay only $89.8 million, court records show.
A blog published on the Website 1440WallStreet.com by “StockJockey” says recent questions raised about SemGroup’s demise echo those raised by U.S. Representative Bart Stupak, D-Michigan, who said a committee he chaired was looking at energy trading issues involving Goldman and Morgan Stanley. While Stupak stressed his committee had no evidence of illegality, he did say it appeared the traders were “taking advantage where no one has ever looked before.” But the investigation, the blogger notes, died.(26)
March 27, 2009:
The Journal Record reports three Oklahoma companies that said they sold oil and gas valued at more than $143 million to SemGroup shortly before it filed for bankruptcy are suing the company that bought the production from April.
IC-CO Inc., WEOC Inc. and Reserve Management Inc. contend that J. Aron & Co. received at least $434.78 million in production or proceeds, including production the plaintiffs sold to SemGroup, but has used purported contract set-offs of $345.5 million, reducing the amount to $89.7 million, which they say SemGroup has agreed to accept in satisfaction.
A blog posted by Adam on “The Accidental Hunt Brothers” reposts a portion of the Forbes.com article, and he adds it appears SemGroup was correct in assuming prices for oil were too high, yet still got squeezed out of its short positions by speculators who made oil prices spike even higher.
“They probably called the operation Semsqueezy,” agrees another blogger, Bob van der Valk, talking about Goldman’s perceived role in wrecking April.(27)
March 30, 2009:
SemGroup finally sues J. Aron and BP in Bankruptcy Court seeking payment of the undisputed amounts that are due, but not for the funds setoff by these parties.. New counsel is used by SemGroup, since its regular counsel, Weil Gotshals, also represents J. Aron and BP.
March 31, 2009:
StockJockey posts on 1440WallStreet.com, talking about how an oil trader from a Swiss energy conglomerate has left the firm to start his own hedge fund. The trader, Andrew Serotta, says he was asked to leave the firm in the wake of a decision by it to focus on physical contracts for oil, rather than speculative ones.
Vitol made that decision after the Commodities Futures Trading Commission ran its books and determined the company was more of a speculator, and not lining up the actual delivery of oil through its contracts. In July, the firm held 11 percent of all the oil contracts on the New York Mercantile Exchange, commodities brokers learned.
StockJockey sees this as more evidence of the “commodity super-cycle” that involved
speculative trading, compounded by frenetic activity in the derivatives markets, which overwhelmed the physical markets, “leading to the biggest booms and busts we have ever witnessed in a wide range of commodities.”
Now, the Commission is reporting that financial firms speculating for their clients account for about 81 percent of the oil contracts on NYMEX, a far bigger share than previously had been stated, he notes.
Meanwhile, StockJockey reports that Louis Freeh has wrapped up his investigation into SemGroup’s collapse. And he also mentions the class action suit filed in Oklahoma against the commodity trading arm of Goldman.
Unfortunately, he writes, the collapse in oil prices is killing growth in supply, and worries that a sustained upturn in global growth could light a fire under crude.
“Enjoy $2 gasoline, it probably won’t last forever,” he writes.(28)
April 1, 2009:
Three heads of Goldman Asset Management, the firm’s quantitative investment group, left the firm on Tuesday, announcing their retirement. The three men, including Ray Iwanowski and Mark Carhart, ran Goldman’s Global Alpha hedge fund, according to Clusterstock, which broke the news. Giorgio De Santis is also leaving Goldman.
Bloomberg News confirmed their departure with Goldman, which declined further comment. Clusterstock said there was speculation inside Goldman about the underlying reasons for the departure of the three men. (29)
April 4, 2009:
Atlantic.com publishes “The Quiet Coup” by Simon Johnson detailing Wall Street and Goldman’s involvement at the highest levels of the United States Government and the evolution of “policy by deal”, where the fear of Systemic Failure caused the government to broker deals (Bear Stearns to JPMorgan, Merrill to Bank of America, AIG bailouts). (30)
April 7, 2009
Market Watch notes that Goldman’s oil trading desk is linked to the failure of SemGroup.(31)
April 9, 2009
A federal judge sets aside the conviction of former Sen. Ted Stevens, and also initiates a criminal contempt proceeding against government lawyers who prosecuted the 85-year-old Alaska Republican. “In 25 years on the bench, I have never seen anything approach the mishandling and misconduct in this case.” (32)
References:
1.) “Did Goldman Goose Oil?”, http://www.forbes.com/forbes/2009/0413/096-sachs-SemGroup-goldman-goose-oil.html
2.) IC-CO Inc. v. J. Aron & Company, U.S.D.C., Eastern District of Oklahoma, Case No. CIV-09-122-RAW, filed March 25
3.) http://www.sec.gov/Archives/edgar/data/1392091/000119312507050936/ds1.htm
4.) “Oil Mergers, Manipulation and Mirages: How Eroding Legal Protections and Lax Regulatory Oversight Harm Consumers,” Public Citizen’s Energy Program, April 2007
5.) http://in.reuters.com/article/businessNews/idINIndia-31106620071224
6.) “SEC Investigating SemGroup,” Tulsa World, July 25, 2008
7.) http://www.1440wallstreet.com/index.php/site/comments/SemGroup_roils_oil_market_ ...
8.) “SemGroup timeline,” The Oklahoman, July 26, 2008
9.) “Regulators Say Company Manipulated Oil Market,” New York Times, July 25, 2008
10.) “Lender claims trades were improper,” The Oklahoman, July 31, 2008
11.) “Royalty owners due payment urged to file SemGroup liens,” The Oklahoman, August 1, 2008
12.) “Staying alive,” The Oklahoman, August 3, 2008
13.) “BOK reports SemGroup loss impact,” The Oklahoman, August 13, 2008
14.) “SemGroup Facing Chapter 11 Fraud Probe,” CFO.COM, August 13, 2008
15.) http://www.sec.gov/Archives/edgar/data/1392091/000114036108019520/doc1.htm
16.) “SemGroup offspring eyes shaky future,” The Oklahoman, August 21, 2008
17.) http://coltonspointtimes.blogspot.com/2008/08/goldman-sachs-again-tries-to-prop-up.html
18.) “SemGroup sues over bid,” Tulsa World, February 13, 2009
19.) http://www.sec.gov/Archives/edgar/data/1392091/000139209109000004/form8k.htm
20.) “SemGroup seeks permit to liquidate subsidiary,” The Oklahoman, February 24, 2009
21.) “Questions follow lease sale,” The Oklahoman, March 7, 2009
22.) “SemGroup CEO hints at restructuring,” The Oklahoman, March 10, 2009
23.) http://www.forbes.com/feeds/afx/2009/03/17/afx6179096.html
24.) http://www.forbes.com/feeds/afx/2009/03/20/afx6194804.html
25.) http://www.forbes.com/forbes/2009/0413/096-sachs-SemGroup-goldman-goose-oil.html
26.) http://www.1440wallstreet.com/index.php/site/comments/the_other_crime_of_the_century ... March 26, 2009
27.) http://accidentalhuntbrothers.com/?p=213, March 27, 2009
28.) http://www.1440wallstreet.com/index.php/site/comments/ex_vitol_oil_trader_to_launch_hedge_fund_as_SemGroup_investigation_wraps_up/, March 31, 2009
29.) http://dealbook.blogs.nytimes.com/category/revolving-door/, April 1, 2009
30.) “The Quiet Coup,” The Atlantic Online, http://www.theatlantic.com/doc/200905/imf-advice, May 2009
31.) “Government Sachs is in Control”, Market Watch, April 7, 2009, http://www.marketwatch.com/news./story/goldman-sachs-bailout-bonanza/story.aspx?quid=584-4E40-B928-80ClbDECBLOS
32.) “Judge Orders Investigation of Stevens Prosecutors,” New York Times, April 9, 2009 http://www.nytimes.com/2009/04/08/us/politics/08stevens.html?_r=1&partner=rss&emc=rss&src=ig
For more information, contact:
John Tucker, attorney for Thomas Kivisto, 918-582-1173
John Catsimatidis, New York businessman trying to reorganize SemGroup, 202-956-5803; email: JACNY@aol.com.
Lee Levinson, attorney representing plaintiffs in the class action suit filed in March in U.S. District Court, Eastern District of Oklahoma. 918-492-4433; email: leelevinson@sbcglobal.net.
Tyson Slocum, director of Public Citizen’s Energy Program, tslocum@citizen.org
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