Saturday, March 28, 2009

Did Goldman Sachs engineer 2008 energy price flyup?

TULSA, Okla. – According to an article in the April 13 issue of Forbes magazine by Christopher Helman and Liz Moyer, when oil prices spiked last summer to $147 a barrel, the biggest energy company casualty was Semgroup Holdings, a private firm in Tulsa, Okla., with $14 billion in annual sales.
Semgroup racked up $2.4 billion in trading losses by betting that oil prices would go down, including $290 million in accounts personally managed by then chief executive Thomas Kivisto. Its 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.
Now some of the people involved in cleaning up the financial mess are suggesting that Semgroup's collapse was more than just bad judgment and worse timing. There is evidence of oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup's accounts.
"What transpired at Semgroup was no less than a $500 billion fraud on the people of the world," says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.
Numerous people familiar with the events insist that Citibank, Merrill Lynch and especially Goldman Sachs had knowledge about Semgroup's trading positions from their vetting of an ill-fated $1.5 billion private placement deal last spring.
"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," says John Tucker, who is representing Kivisto.
What's known for sure is that Goldman Sachs, through J. Aron & Co., its commodities trading arm, was in position to use such data - and profited handsomely from Semgroup's fall.
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