Pressure Builds on Chesapeake CEO McClendon, Caught Up in Enron-type Scandal; Shareholders Sue

Apr 20th, 2012 | By Mark | Category: Lead Articles

NatGas Consulting

Shareholders at Chesapeake Energy have filed suit against the company's CEO, Aubrey McClendon, alleging that he failed to disclose significant conflicts of interest.

Shareholders at Chesapeake Energy, the nation’s second-largest producer of natural gas, have filed suit against the company’s CEO, Aubrey McClendon, accusing the controversial executive of covering up a conflict of interest in connection with more than a billion dollars worth of personal loans McClendon took out against his stake in Chesapeake assets, according to recent media reports.

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From a Reuters story describing the allegations:

McClendon has borrowed as much as $1.1 billion in the last three years by pledging his stake in the company’s oil and natural gas wells as collateral, documents reviewed by Reuters show. The loans were made through three companies controlled by McClendon that list Chesapeake’s headquarters as their address. The money is being used to help finance what could be a lucrative perk of his job: the opportunity to buy into the very same well stakes that he is using as collateral for the borrowings.

The size and nature of the loans raise concerns about whether McClendon’s personal financial deals could compromise his fiduciary duty to Chesapeake investors, according to more than a dozen academics, analysts and attorneys who reviewed the loan agreements for Reuters.

Forbes writer Chris Helman has a great piece that puts the allegations against McClendon in perspective, using plain English, here.

The shareholders’ lawsuit, which you can read for yourself here, came just one day after the Reuters story hit the streets — although the fact that McClendon was borrowing against his Chesapeake assets first broke in the Pittsburgh Post-Gazette nearly a month ago.

Chesapeake Energy has fracking operations throughout the United States.

And things show no signs of abating. Indeed, since the lawsuit was filed, the pressure on McClendon has ramped up considerably, with at least one industry analyst calling on both him and the members of the company’s Board of Directors to resign.

The pressure has been mounting in other ways as well — within hours of the Reuters story breaking, someone had created a Twitter account using a slight variation of McClendon’s name and started tweeting things like, “$1.1 billion will buy a lot of wine,” and the social media platform was abuzz with activity related to the rapidly evolving story.

Likewise, Kevin McNellis, in a blog for the National Institute on Money in State Politics, detailed the nature and amount of political contributions made by Chesapeake Energy and McClendon to various friendly state politicians around the country, even as the CEO was allegedly driving the company to the brink of fiscal ruin.

Stay tuned.

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2 Comments to “Pressure Builds on Chesapeake CEO McClendon, Caught Up in Enron-type Scandal; Shareholders Sue”

  1. [...] Run a hedge fund on the side and borrow over a billion from your company? (CHK) Apparently not. [...]

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