Forbes - Did Goldman Goose Oil?

[Dover]

How Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant Semgroup.

When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla. It had racked up $2.4 billion in trading losses 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% 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.

But 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 a malevolent hand at work: 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.

What's the evidence of this? Much is circumstantial. Proving oil-trading manipulation is difficult. But 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...cont'd

http://www.forbes.com/forbes/2009/0413/096-sachs-semgroup-goldman-goose-oil.html

[tinkerbell41]

1. Article About this in

Rolling Stone also

[imdjh]

2. "What transpired at Semgroup was no less than a $500 billion fraud on the people of the world,"

I don't know anything about the arl bidness, but I am perfectly willing to believe the quoted statement.

[femrap]

3. When will the leaders

of GS be dressed in orange? How much more destruction will it take?

[truedelphi]

4. Certainly not as long as their inner circle of friends

Sit at Treasury and the Federal Reserve in the top positions!!

Goldman Sachs is now the power house manipulating the strings of the puppet Administration.

But hey - at least some valuable campaign contributions will be available to the Dems come election cycle 2010.

[femrap]

7. Maybe this software 'theft' by the Russian

employee will come to something....GS says the program can manipulate the market. It would be so sweet to see Karma come around bite them in the ass and elsewhere!

[gorfle]

5. Never.

These people have enough money to do whatever they want. They are not only above the law, they are above the people who make law.

[bvar22]

6. Where do you go when you graduate from Goldman Sachs?

?

[truedelphi]

8. I have heard you end up selling retail items at WalMart!

Unless you corruptly accept a position as Chief of Staff for Timothy Geithner.

[econoclast]

9. I don't get it

I certainly am willing to believe that market manipulation exists, especially where a big position sits in shaky hands. But after reading the article I don't see how Goldman profited. Barclays ended up with Semgroup's positions. And Barclay's ended up with the billion dollar profit.

The usual idea behind a manipulated short squeeze is :

someone or some group has a giant short position but doesn't have the capital to hold on to that position if the price goes up

Knowledge of that situation gets out into the market

people with that knowledge go long where the shaky guy is short and then thy to move the market enough to induce the short/shaky guy to panic buy to cover the short. The panic buying generates huge profits for the manipulators on their long position.

Or

people with that knowledge realize "hey, the short guy is probably right!". "wish I had their position". Then it dawns on them that maybe they CAN get the position. They use the shorts shaky finances to flush out the position on the cheap. I have seen, back in the day, this happen on small exchanges with stop-loss orders. It used to be called "running the stops" on the Philadelphia exchange and it was common practice when buying an option position on that exchange NOT to place a stop loss order just to keep them from running the stop.

So while the Forbes piece indicates that Goldman and Citi and Merrill had access to the knowledge, but it fails to demonstrate that they profited. ( maybe they did but the article doesn't make that assertion )

Barclays profited. But the article doesn't indicate that they had the knowledge. But who knows? Especially with Citi and ML in the mix. Goldman is usually pretty close mouthed. But ML and Citi? Who knows who talks to whom?

Just based on the article I guess I'd be more inclined to be looking at Barclays.