SemGroup Energy Partners Case 8/8/2008

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Company Name(s): 
SemGroup Energy Partners
Case Name: 
SemGroup Energy Partners Case 8/8/2008
Case Status: 
Lawsuit Filed
Case Status: 
Settlement Proposed
Affected Securities
NASDAQ: SGLP
Lawsuit Overview
Type of Lawsuit: 
Shareholder Class Action
Date Filed: 
08/08/2008
Class Period Begin: 
07/17/2007
Class Period End: 
07/17/2008
Date Settled: 
10/05/2011
Settlement Amount: 
$28,000,000
Deadline to Participate in Settlement: 
10/15/2011
Summary: 

JUNE 2011 - According to the Notice:

Securities Involved: SGLP common units purchased or held during the period from July 17, 2007 through and including July 17, 2008 (the “Class Period”), including those SGLP common units issued pursuant or traceable to the Registration Statements and Prospectuses filed with the SEC in connection with SGLP’s July 17, 2007 initial public offering and February 14, 2008 public offering.

Settlement Amount: The Settlement provides for the combined payment of $28 million and is comprised of the following two components: (i) $22.8 million in cash (the “Cash Settlement Amount”) and (ii) the number of Blueknight Energy Partners, L.P. common units (the “Settlement Units”) that equals $5.2 million (the “Units Settlement Amount”). The number of Settlement Units shall be determined by the average per unit closing price of Blueknight Energy Partners, L.P. common units during the ten trading days immediately preceding the Court’s entry of the Judgment. The Cash Settlement Amount, the Units Settlement Amount and any interest earned thereon shall be collectively referred to herein as the “Settlement Fund.” See Question 8 below for more details. Your recovery from the Settlement Fund will
depend on the amount of SGLP common units you purchased during the Class Period, and the timing of your sales, if any, of such SGLP common units. Depending on the number of claims filed and when Class Members purchased and sold their SGLP common units, as well as the ultimate value of the Settlement Units when sold, the estimated average recovery per damaged SGLP common unit will be approximately $1.34. Please Note: This average is only an estimate, and is before deduction of court‐approved fees and expenses.

The Lawsuit: The Settlement resolves class action litigation over allegations as to whether, during the relevant period, SGLP’s public statements regarding its internal controls, management, and stable revenues from its parent, SemGroup L.P. (“SemGroup”), were false and misleading because, unbeknownst to investors, SemGroup was actually engaged in undisclosed, risky, speculative and unauthorized trading in crude oil and other commodities.

AUGUST 2008 - A second lawsuit was filed on 8/8/2008 against SemGroup, Energy Partners, L.P.According to a press release by a law firm a shareholder has filed a class action in the United States District Court for the Southern District of New York on behalf of purchasers of SemGroup Energy Partners, L.P. (“SGLP”) (NASDAQ:SGLP) common units during the period between July 17, 2007 and July 17, 2008 (the “Class Period”), and on behalf of purchasers of SGLP’s common units acquired pursuant and/or traceable to the Registration Statement and Prospectus issued in connection with SGLP’s Initial Public Offering completed on or about July 23, 2007 (“IPO”), as well as all purchasers of SGLP common units acquired pursuant and/or traceable to the Registration Statement and Prospectus issued in connection with SGLP’s secondary offering completed on or about February 20, 2008 (“Secondary Offering”)

The complaint charges the defendants with violations of the Securities Exchange Act of 1934 and the Securities Act of 1933. SGLP owns and operates a diversified portfolio of midstream energy assets, including storage facilities, terminals and pipelines in the United States.

The complaint alleges that the Registration Statements and Prospectuses issued in connection with the IPO and Secondary Offering were materially false and misleading, and/or omitted material information necessary to make the statements made, in light of such material omissions, not materially false and misleading. In addition, during the Class Period, a continuous course of conduct was undertaken that operated as a fraud and deceit upon plaintiff and the Class. Various untrue and/or misleading statements of material facts were made, and material facts necessary in order to make the statements made not misleading, were omitted.

According to the complaint, the Registration Statements and Prospectuses issued in connection with the IPO and Secondary Offering and the statements made during the Class Period failed to disclose the adverse financial condition and lack of liquidity of SemGroup L.P. (SGLP’s Parent, from whom SGLP derives more than 80% of its revenue) as a result of its speculative, dangerous and unauthorized hedging and trading in crude oil.

Plaintiff seeks to recover damages on behalf of all purchasers of SGLP common units during the Class Period and all purchasers of SGLP common units acquired pursuant and/or traceable to SGLP’s IPO and Secondary Offering Registration Statements and Prospectuses.

Date Filed: 7/21/2008 - Class Period Start: 2/20/2008 - End: 7/17/2008

On August 26, 2008, a notice of voluntary dismissal without prejudice was filed and the case is closed.

According to a law firm press release, the class action filed against the company alleges that the Prospectus for the secondary offering misrepresented the financial strength of SemGroup’s Parent (SemGroup, L.P.) and failed to disclose that the Parent had engaged in risky hedging strategies that presented a material risk of default and bankruptcy. Inasmuch as SemGroup’s business operations were heavily dependent on its Parent, the true facts concerning the Parent’s financial condition were material to a reasonable investor’s decision to purchase units on the secondary offering. Those true facts were first disclosed to investors on Thursday, July 17, 2008, when it was revealed that because of its hedging strategies the Parent was at risk of filing for bankruptcy. The Parent and affiliated companies subsequently filed for bankruptcy on Monday, July 21, 2008. As a result of the July 17, 2008 disclosures and subsequent bankruptcy filing, SemGroup’s units, which closed on Wednesday, July 16, 2008 at $22.80 per unit, plummeted to close on Wednesday, July 23, 2008 at $8.00 per unit. Documents filed on behalf of the Parent in Bankruptcy Court revealed that SemGroup began experiencing financial distress in 2007 and early 2008, prior to the secondary offering. The Prospectus failed to disclose that the Parent was suffering from liquidity problems, or that it was engaged in highly risky crude oil hedge transactions that affected its ability to continue as a going concern.