Their mistake was that they were not 'too big to fail' and were not protected by one of the Fed's banking syndicate.
Remember this when one or more of the metals shorts are brought to their knees, and they whine to the Treasury and CFTC to force a cash settlement on their predatory short positions.
Hank Paulson had an interesting quote about bailing out hedge funds today:
"We also need additional powers to manage the resolution, or wind-down, of large non-depository financial institutions, such as larger hedge funds, so as to limit the impact of a failure on the broader financial system."
Huge oil trading loss sinks energy trader SemGroup
By Robert Campbell
Tuesday July 22, 3:58 pm ET
Guardian UK
NEW YORK (Reuters) - SemGroup LP declared bankruptcy on Tuesday after $3.2 billion in oil-trading losses torpedoed what had been the 12th-largest private U.S. company.
The Tulsa, Oklahoma-based company racked up the massive losses as oil prices ran up record gains, undercutting short crude futures positions SemGroup bought to hedge against its 500,000 barrel-per-day trading business.
Officials said SemGroup, in order to meet obligations to creditors, plans to sell off oil and natural gas gathering, transportation, and storage assets purchased in a whirlwind of acquisitions since it was founded in 2000.
"We have determined that the best way to maximize value for our creditors is to undertake a sales process that will transition our valuable businesses to well-established companies," Terry Ronan, SemGroup's acting chief executive, said in a statement.
SemGroup was forced to take a $2.4 billion loss on July 16 after it transferred its NYMEX trading account to Barclays Plc. The firm had accounted for this position as "loss contingencies," according to its bankruptcy filing in Delaware federal court.
Included in the NYMEX losses is $290 million owed to SemGroup by a trading company owned by SemGroup's co-founder and former chief executive, Thomas Kivisto, who was placed on administrative leave on July 17.
SemGroup had engaged in regular hedging transactions with BOK Financial Corp, where Kivisto had been a board member since 2006 before resigning on July 16. As of the end of 2007, SemGroup had hedged 21 million barrels of crude oil with BOK, which had a fair value of negative $130 million.
At the end of March, this position was worth negative $88 million, said BOK spokesman Jesse Boudiette, who declined to comment on BOK's current exposure to SemGroup, saying the bank would not speak publicly about individual clients.
LOSSES
SemGroup, ranked the No. 12 private U.S. company by Forbes.com in 2007, incurred $850 million in losses on July 17 when its over-the-counter hedging program was marked to market.
SemGroup listed assets of $6.14 billion and liabilities of $7.53 billion in its bankruptcy filing. Liabilities included $3.1 billion of total debt, including $2 billion of secured debt and $594 million in unsecured notes.
SemGroup's financial difficulties were disclosed by its publicly traded affiliate SemGroup Energy Partners LP (NasdaqGM:SGLP) last week, when it warned that a liquidity crisis at its parent could lead to a bankruptcy filing. SemGroup Energy Partners and its general partner are not part of the bankruptcy filing.
Two hedge funds took control of SemGroup Energy Partners' general partner last week under the terms of a loan.
SemGroup Energy Partners management said it was confident the partnership could survive despite SemGroup's bankruptcy and would seek new business from third parties. The company's board has also authorized management to consider a sale or merger.
SemGroup Energy Partners also warned it was not ready to say if it would make a cash distribution to unitholders in the second quarter, though its management believes parent SemGroup will continue to use its fee-based assets to maintain operations while in bankruptcy.
