May 18, 2010 - 2:52 pmShare3
Christopher HelmanBio | Email
Christopher Helman is an Associate Editor at Forbes, based in Houston

Dozens of small oil and gas producers across Oklahoma and the Midwest are suing Goldman Sachs, BP and ConocoPhillips, claiming the defendants conspired to defraud them out of proceeds for crude oil they delivered just before the collapse of Oklahoma-based pipeline giant Semgroup in the summer of 2008.

With this lawsuit, filed in Oklahoma district court, we're one step closer to finding out if Goldman Sachs was responsible for helping to goose oil prices to record highs in the summer of 2008 by conspiring against Semgroup in massive crude oil trades. As first detailed by Forbes Magazine a year ago in this article, Semgroup collapsed into bankruptcy under $3 billion in short sale losses on oil futures trades. Goldman, through its J. Aron commodities division, was Semgroup's largest counterparty, and appears to have been responsible for giving Semgroup its final push off the cliff by unleashing a massive margin call on Semgroup as oil prices spiked. Billionaire John Catsimatidis, who has settled his own Semgroup-related suits in the past year, has asserted that Goldman's actions may have helped push up the price of oil to its record of $147 a barrel.

J. Aron and other big oil traders like BP regularly bought thousands of barrels of physical crude oil from Semgroup, which in turn bought the oil from the plaintiffs. Those plaintiffs still haven't received more than $400 million they're owed for their oil, because J. Aron and other counterparties still owed money from Semgroup refuse to pay.

Attorneys for the small oil companies believe that Goldman, which was one of Semgroup's bankers, had improperly shared information on Semgroup's trading positions with J. Aron. The allegation is similar to those leveled at Goldman in relation to the ongoing probe of its sale of complex collateralized debt obligations: that the bank was selling clients a particular trade, then taking the other side of that trade, and profiting from its clients' losses.

A general counsel for one of the oil companies that is suing Semgroup and J. Aron in federal bankruptcy court says he's been frustrated at the glacial pace of the bankruptcy proceedings. The plaintifffs would like to get access to 800,000 documents from Goldman, BP and other counterparties that had been turned over to independent investigator Louis Freeh, but which have not yet been made public. The attorney says that this new case will likely be moved from Oklahoma courts to the "black hole" of federal bankruptcy court, where the other Semgroup cases are being handled.

As a better, and quicker way to get to the bottom of this case, the plaintiffs have been encouraging Sen. Tom Coburn, R-Okla., to push for hearings on the case in the Senate Committee on Homeland Security and Government Affairs. The committee could order the immediate release of those thousands of documents and subpoena Goldman and BP execs. One wholly unanswered question is whether Goldman had a position in credit default swaps on Semgroup's debt. If so, it would have been a big incentive to push the company into bankruptcy.

The Senate committee has regularly looked at energy issues, and given that Goldman Sachs and BP have both become bipartisan whipping boys, there could be political hay to be made in hauling them before a hearing on oil price manipulation. "It's only fitting that here we have the two great vampire squids working in concert" to defraud the little guy, says the attorney. A spokesperson for Goldman was not immediately available for comment. A spokesperson for BP said the company would not discuss ongoing legal matters.

http://blogs.forbes.com/energysource/2010/05/18/bp-goldman-sued-oil-fraud