Lawsuit Against SemGroup, PwC Over Failed Oil Futures Trades Back to Tulsa

Michelle Remo, “Big 4″ observer
September 16, 2011 /

A federal judge has ruled to move a lawsuit against accounting firm PricewaterhouseCoopers (PwC) and SemGroup LP back to Tulsa County District Court in Oklahoma following the eight months of being subject to a federal jurisdiction.

Privately held SemGroup was an oil, gas and asphalt storage and transport company that saw its revenues rising until 2008. U.S. District Judge James Payne has decided to return the lawsuit back to Tulsa County District Court, which was originally filed under state jurisdiction in December 2010 and transferred, under the defendants’ request, to U.S. District Court in Tulsa one month later.

Local investors Cottonwood Partnership, Dunbar Family Partnership, Rosene Family, Warren Kruger, Katherine Kruger and others originally brought the suit against the SemGroup co-founder and PwC. The plaintiffs alleged the company hid the risky trading practices and financial problems of Kivisto.

The lawsuit against SemGroup co-founder and former CEO Tom Kivisto, PwC and others claimed that the defendants had been negligent and “self-dealing”, failing in their duties on the oil futures trades.

The shortcomings accordingly resulted in the Tulsa-based company to go into bankruptcy, having lost almost $3 billion in margin calls on Kivisto’s futures trading strategy.

The margin calls on those losses depleted SemGroup’s cash flow and forced the July 2008 Chapter 11 bankruptcy filing when credit went volatile.

The petition read: “In an effort to create federal jurisdiction where none exists, PwC invents two counterfactual scenarios under which, it speculates, plaintiff’s rights might affect SemGroup’s estate,” the petition read. Plaintiffs do not assert any rights on behalf of SemGroup or its creditors,” the petition stated. “This case has nothing to do with SemGroup’s bankruptcy.”

“Not only did PwC fail to alert plaintiffs and others about those problems, Kivisto made numerous representations to plaintiffs designed to conceal the nature of his misconduct,” the December 2010 complaint stated.

The defendants maintained, however, that the lawsuit should be under federal jurisdiction because the SemGroup Litigation Trust would carry the expense of any recovery earned on victory or settlement in the bankruptcy case.

The defendants went on to say that the value of the plaintiffs’ equity in SemGroup was lost when the company went insolvent and filed for bankruptcy.

“But that is true of all SemGroup’s equity holders, and thus it is an injury to SemGroup itself,” their response stated.

A year ago, Kivisto and his fellow SemGroup defendants settled the Delaware federal bankruptcy lawsuit brought by former employers and creditors for a reported $30 million. The money was paid from an executive insurance policy.

Kivisto’s critics claimed he undertook futures trading for his own company, Westback Purchasing Co., on SemGroup’s account, while SemGroup charged that he owed close to $300 million from Westback losses.

Upon completion of the investigation by former FBI Director Louis Freeh, federal court-appointed bankruptcy examiner, Kivisto was found to be leading a risky and stealthy trading strategy that was kept from lenders and other counterparties.

 

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