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Thomas O. Gorman,
Dorsey and Whitney LLP
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    LIQUIDITY PROBLEMS OF COMPANY YIELDS TWO INSIDER TRADING CASES

    The Commission filed its second settled insider trading case arising out of the financial difficulties of Blueknight Energy Partners, LP, previously known as SemGroup Energy Partners LP. SEC v. Navarro, Civil Action No. 4:10-CV-189 (N.D. Okla. Filed March 31, 2010). According to the court papers, in July 2008 SemGroup LP and its largest customer were experiencing liquidity problems. That company is the privately held parent of Nasdaq listed Blueknight and SemCrude.

    Mr. Navarro at the time was the crude oil purchasing manager of SemCrude. After learning of the liquidity difficulties being experienced by the parent company and its primary customer, Mr. Navarro liquidated his holdings in what is now Blueknight on July 14, 2008. The shares were sold at an average price of $23.78, netting Mr. Navarro $128,442.41.

    Three days later on July 17, after the close of trading, the company announced that SemGroup, LP was experiencing liquidity issues. The announcement went on to state that the company was considering bankruptcy. The next day the shares closed at $8.30, 65% lower than Mr. Navarro’s average sale price. Accordingly, Mr. Navarro was able to avoid a loss of $83,602 by selling his shares prior to the announcement.

    To resolve the case, Mr. Navarro consented to the entry of a permanent injunction prohibiting future violations of Section 10(b) of the Exchange Act. He also agreed to the entry of an order requiring him to disgorge the loss he avoided along with prejudgment interest and to the payment of a civil penalty in the same amount.

    Previously, the Commission filed a settled insider trading case against Tulsa, Oklahoma attorney Matthew J. Browne based on the same facts. While doing legal work for the company, Mr. Browne learned about its liquidity problems and sold his shares on the same say as Mr. Navarro, as discussed here. Mr. Browne settled on terms similar to those of Mr. Navarro. See also Litig. Rel. 21469 (March 31, 2010).

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