Creditors say fraud possible in SemGroup collapse

By Jessica Hall

WILMINGTON, Delaware (Reuters) - A group of SemGroup LP creditors on Wednesday raised the prospect that unauthorized energy trading may have caused the $3.2 billion loss that sank the 12th-biggest privately held U.S. company.

Eleven lenders that participated in a $141 million secured term loan objected to SemGroup's request for permission to access cash collateral to maintain normal business operations, warning in a brief filed with the court that any fraudulent trades made by SemGroup could affect their ability to recoup their losses.

"Last week was the first that we heard of this level of losses and at the same time heard the need for more money," said Keith Wafford, a lawyer for the 11 creditors at SemGroup's first bankruptcy hearing in a Wilmington, Delaware federal court.

The objection was filed on the day the court was approving routine requests by SemGroup for permission to continue to use cash to remain in business.

Judge Brendan Shannon denied the 11 creditors' request to block SemGroup's access to the collateral cash, noting dozens of other lenders had not objected.

Many of SemGroup's long-time bankers and other creditors were surprised by the extent of the company's financial difficulties, which were first revealed in a conference call on July 15, two sources familiar with the situation said on Wednesday.

A SemGroup spokesman said on Tuesday the company had not suspected any wrongdoing in the huge trading losses but its attorneys acknowledged in court on Wednesday that the circumstances of the once high-flying energy trader's collapse are murky.

"Those trading losses are the source of the company's problems. We'll have answers in the course of the case, but the hows and whys are not entirely clear," said Martin Sosland, a lawyer for SemGroup, speaking during a hearing at the U.S. bankruptcy court in Wilmington, Delaware.

SemGroup filed for bankruptcy on Tuesday after admitting $3.2 billion in trading losses on the New York Mercantile Exchange and over-the-counter energy derivative markets.

The Tulsa, Oklahoma-based company said the losses were incurred as part of a failed hedging strategy designed to protect its main physical oil trading business.

Included in SemGroup's losses was $290 million owed to the company to cover losses on the NYMEX incurred by a trading company owned by SemGroup's co-founder and former chief executive, Thomas Kivisto.

Kivisto was placed on "administrative leave" shortly after SemGroup's NYMEX account was transferred to Barclays Plc (BARC.L: Quote, Profile, Research, Stock Buzz) on July 16. The move of the account to Barclays forced SemGroup to recognize $2.4 billion in losses on its futures position.

A Barclays spokesman declined to comment when asked about the British bank's activities.

SemGroup LP's publicly traded subsidiary SemGroup Energy Partners LP (SGLP.O: Quote, Profile, Research, Stock Buzz), which was not included in the bankruptcy filing, made public its parent's financial difficulties on July 17.

SemGroup grew rapidly through dozens of acquisitions of oil storage and transportation facilities since its founding in 2000, becoming the 12th-biggest privately held company in the United States by 2007, according to Forbes.com.