The encyclopedia · Trading & Investing · Financial decision · 2008
SemGroup's $3.2 billion oil trading bet blew up in a week
SemGroup, a mid-sized oil storage and transport company, collapsed in 2008 when a speculative oil trading strategy went wrong.
SemGroup · 2008-07
What happened
SemGroup LP was a mid-sized oil storage, transport and asphalt company founded in 2000. It grew by buying and storing crude oil, then selling it at a profit when prices rose. Behind the growth, however, the company was running a massive speculative oil trading operation funded by secret borrowing that the board and lenders did not know about.
When oil prices crashed from $145 to $90 a barrel in July 2008, SemGroup's trading positions collapsed. The company filed for Chapter 11 bankruptcy on July 22, 2008, with a $3.2 billion failure. A court-ordered investigation by former FBI director Louis Freeh found that the company's CEO and CFO had lied about liquidity while draining $362 million for personal transactions.
SemGroup exited bankruptcy in December 2009 as a restructured company focused on asphalt and storage. CEO Thomas Kivisto and CFO Gregory Wallace were sued by creditors seeking return of misappropriated funds. The company was eventually acquired by Energy Transfer in 2019. The collapse became a textbook case of how commodity trading losses can be hidden from lenders and investors.
Why it happened
- CEO Kivisto ran a speculative oil trading operation that was larger than the company's core business and hidden from the board.
- The company borrowed heavily to fund trading positions without disclosing the true extent of its leverage.
- Kivisto and Wallace withdrew $362 million for personal use while the company was hiding its liquidity crisis.
- SemGroup's lenders relied on financial statements that did not reflect the real trading risk the company was taking.
The lesson
When the people running a company are also the people betting with it, the only question is which price move will expose them — not whether one will.
Sources
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