Former CEO in Tulsa Charged with Misleading Investors About Liquidity Risks

Jack Humphrey, Regulatory journalist
October 20, 2011 /

The Securities and Exchange Commission has charged the co-founder of a Tulsa-based energy company with misleading investors in one of its subsidiaries about liquidity risks they faced from his energy trading.

Thomas Kivisto was CEO and president of SemGroup L.P., which bought, transported and sold petroleum products and traded crude oil and related commodities and derivatives. Kivisto managed these trading activities.

Meanwhile, Kivisto also was 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 Kivisto signed certain corporate filings that SGLP made with the SEC, including registration statements and its annual report.

According to the SEC’s complaint filed in federal court in Tulsa, SGLP’s filings assured investors that its revenue stream from SemGroup, which was its largest customer, was “stable and predictable” and protected from volatility in oil prices.

However, unbeknownst to investors, Kivisto’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, according to an investigation conducted by David Peavler, Robert Hannan, Keith Hunter, and David King in the SEC’s Fort Worth Regional Office.

The U.S. Attorney’s Office for the Northern District of Oklahoma and the U.S. Commodity Futures Trading Commission (CFTC) aided in the investigation.

Investors were never warned of these risks, which came to a head in July 2008 when SemGroup’s lenders cancelled the credit facility and the company filed for bankruptcy. The price of SGLP’s limited partnership units subsequently declined more than 60 percent.

“Investors have a right to know the risks that could imperil their investment,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

“Kivisto should have known that the SGLP filings he signed did not warn investors about the risks created by his energy trading, and investors were blindsided when those risks came to fruition.”

The SEC said Kivisto should have known that certain SGLP public filings that he signed were misleading investors about the reliability of SGLP’s revenue stream and the risks that SGLP faced from Kivisto’s energy trading. SemGroup provided up to 89 percent of SGLP’s revenues and thus was critical to SGLP’s profitability. SGLP is now known as Blueknight Energy Partners L.P.

Kivisto 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 that were awarded to him under SGLP’s long-term incentive plan.

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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