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Why SandRidge Energy Inc. (SD)’s Board Should Be Gutted

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SandRidge Energy Inc. (NYSE:SD) Chairman and CEO Tom Ward has been using the company as his personal playground for too long. And his board has been letting him.

Here’s a recent example.

SandRidge Energy Inc. (NYSE:SD)

Tom Ward’s $5 million wrist-slap
According to SandRidge Energy Inc. (NYSE:SD)’s 2013 proxy, Tom Ward has to pay the company $5 million over the next four years to settle a third-party lawsuit. Beyond that, the proxy says very little, leaving shareholders guessing about the nature of the lawsuit and why Ward has to pay $5 million to a company he runs. Whether this payout is a consequence of misconduct should concern shareholders.

A troubling tale
Based on a compelling account from Reuters of what probably happened, I believe shareholders should be very concerned. Here’s the story it tells.

  • Tom Ward used his SandRidge Energy Inc. (NYSE:SD) stock as collateral for extensive personal loans. When shares plunged because of the financial crisis, lenders demanded that Ward put up more money as collateral.
  • In late 2008, Ward sold his stakes in SandRidge Energy Inc. (NYSE:SD) wells to raise the money needed to pay his lenders. During that time, SandRidge Energy Inc. (NYSE:SD) was facing financial difficulties of its own and was left with only $636,000 in cash at the end of 2008.
  • When SandRidge Energy Inc. (NYSE:SD) shares declined further, Ward had to put up more collateral. He borrowed $75 million from George Kaiser, the chairman of BOK Financial, and a charitable trust run by Kaiser. In return, Kaiser received warrants that gave him the right to buy SandRidge shares owned by Ward.
  • When Ward’s financial situation got even worse, he had to renegotiate the deal. According to the new deal, Ward had to give Kaiser 8.9 million shares and a warrant to buy more SandRidge shares in the future. In addition, Kaiser gained temporary access to SandRidge’s financial records. In other words, Ward gave Kaiser access to SandRidge’s financial records to facilitate a private deal, and not for the benefit of shareholders.
  • An outraged shareholder alleged that Ward improperly profited from these business dealings and filed a lawsuit in late 2010.
  • In late 2012, the shareholder agreed to dismiss the lawsuit. On the same day, Tom Ward agreed to pay $5 million to SandRidge to settle a lawsuit. However, SandRidge refused to clarify whether this payment was connected to this particular lawsuit.
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