Friday, October 21, 2011

SEC Charges Former CEO in Tulsa With Misleading Investors about Liquidity Risks

The SEC has charged the co-founder and CEO of a Tulsa-based energy company with misleading investors in one of its subsidiaries about liquidity risks they faced from his energy trading. According to the SEC’s complaint filed in federal court in Tulsa, the individual was CEO and president of SemGroup L.P., which bought, transported and sold petroleum products and traded crude oil and related commodities and derivatives. The trading activities were managed by the CEO. In addition to these responsibilities, he was also a director of SemGroup’s subsidiary, SemGroup Energy Partners L.P. (SGLP), which owns midstream oil and gas assets such as pipelines and storage facilities. SGLP issues publicly-traded limited partnership units, and the CEO signed certain corporate filings that SGLP made with the SEC. 

The SEC alleges that the filings assured investors that its revenue stream from SemGroup was “stable and predictable” and protected from volatility in oil prices. However, below the surface, the CEO's energy trading was increasingly draining SemGroup’s credit facilities and other liquidity sources and jeopardizing the company’s ability to fulfill its commitments to SGLP. Investors were never warned of these risks, which came to a head in July 2008 when SemGroup’s lenders canceled the credit facility and the company filed for bankruptcy. The price of SGLP’s limited partnership units subsequently declined more than 60 percent. It is alleged that the CEO should have been aware that filings he had signed were misleading about the reliability of SGLP's revenue stream and therefore did not adequately inform the investors of the risks.

The accused CEO has agreed to settle the SEC’s charges without admitting or denying the allegations by paying a $225,000 penalty and forfeiting his rights to SGLP limited partnership units currently worth more than $1.1 million. He also consented to entry of a final judgment permanently enjoining him from violating the antifraud provisions of the Securities Act of 1933.
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