U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21260 / October 23, 2009
Securities and Exchange Commission v. Don N. Spaugy, Civ. Action No. 09-CV-687-TCK-FHM (United States District Court for the Northern District of Oklahoma)
SEC Files Settled Insider Trading Charges Against Former SemGroup, LP Executive
Today, the Securities and Exchange Commission filed a civil action in the United States District Court for the Northern District of Oklahoma, alleging that Don N. Spaugy, the former Vice President of Financial Services at SemGroup, LP ("SemGroup"), engaged in insider trading in the securities of then Nasdaq-listed SemGroup Energy Partners, LP ("SGLP"). At the time of Spaugy's trading, SemGroup was SGLP's parent company and its largest source of revenue.
According to the Commission's complaint, between late May 2008 and the morning of July 15, 2008, and in the course of his employment at SemGroup, Spaugy learned that SemGroup was in a liquidity crisis driven by massive margin calls from its wrong-way bets in the commodities and futures markets. In particular, the complaint alleges that, shortly before liquidating his SGLP holdings, Spaugy: (1) received, via email, 111 margin calls for SemGroup from six futures commission merchants totaling over $570 million; (2) knew that certain SemGroup customers and trading partners were reducing/terminating their trade and credit lines with the company; and (3) was notified by SemGroup's commercial bank that a primary corporate account was overdrawn by over $4 million.
The complaint further alleges that, after learning this material nonpublic information, on July 15 and 16, 2008, Spaugy liquidated 4,500 SGLP units, at an average price of $23.28 per unit. According to the complaint, by secretly trading on the nonpublic information, Spaugy breached a duty of trust and confidence he owed to his employer, SemGroup.
On July 17, after the close of trading, SGLP announced that SemGroup was "experiencing liquidity issues" and was considering bankruptcy. On July 18, SGLP's unit price closed at $8.30 per unit, 64.35% lower than Spaugy's average sale price. According to the complaint, by liquidating his SGLP holdings on July 15 and 16, Spaugy avoided losses of $67,424.
Spaugy has consented, without admitting or denying the allegations in the complaint, to a permanent injunction against future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and to pay disgorgement of the $67,424 loss he avoided by his illegal trading, plus prejudgment interest of $3,378.13, and a civil penalty of $67,424.
The staff's investigation is ongoing.