THE WAR ON INSIDER TRADING CONTINUES
The SEC continued its war on insider trading, filing another settled enforcement action. SEC v. Spaugy, Civil Action No. 09-CV-687 (N.D. Okla. Filed Oct. 23, 2009). Defendant Don Spaugy was the Vice President of Financial Services for SemGroup, LP.
Between late May and July 15, 2008, SemGroup suffered a severe liquidity crisis as Mr. Spaugy well knew. The company received large margin calls from its commodity and future market positions as the price of crude oil moved against them. During this period Mr. Spaugy received 111 margin calls from six future commission merchants. In one five-week period, the calls totaled over $570 million. During this same period trading partners began to reduce their credit and trade lines with the company. By July 9, 2008 the company received an e-mail from its commercial bank stating that its account was overdrawn by over $4.1 million.
As the liquidity crisis continued, the company arranged to transfer its NYMEX portfolio to an international bank. The fee for this transaction was $143 million. The meeting was arranged by Mr. Spaugy.
On July 14, Mr. Spaugy called his broker and asked when his units in the limited partnership would be eligible for long term capital gains treatment. Although that would not occur until July 18, 2008, Mr. Spaugy sold over half of his holdings the next day. He sold his remaining holdings on July 16. The following day the company announced that it was experiencing a liquidity crisis and was exploring options including Chapter 11. Its share price dropped significantly.
To resolve the case, Mr. Spaugy consented to the entry of a permanent injunction prohibiting future violations of Section 10(b) and Rule 10b-5 thereunder. He also agreed to disgorge the over $67,0000 he avoided in losses plus prejudgment interest and to pay a civil penalty equal to the amount of the disgorgement and prejudgment interest. See also Litig. Rel 21260 (Oct. 23, 2009).