SEC Begins Chesapeake Inquiry, Energy Company Confirms
May 4, 2012 (Fort Worth Star-Telegram, Texas) Chesapeake Energy on Thursday confirmed that the Securities and Exchange Commission has told the company and its top executive, Aubrey McClendon, that the agency's Fort Worth regional office has started an informal inquiry and asked both parties to retain "certain documents."
Chesapeake did not detail the nature of the inquiry, but last week Reuters news service, citing an unidentified source, said the agency was looking at a program that allowed McClendon to invest in the Oklahoma City-based producer's oil and gas wells.
An official with the SEC's Fort Worth office said the agency does not publicly discuss such inquiries. The SEC uses informal investigations, interviews, record examinations and other methods to gather information about possible violations of securities laws, according to its website.
Chesapeake said the SEC notice, received Wednesday, states that an inquiry "should not be construed as an indication that any violation of the federal securities laws has occurred." The company said it and McClendon "intend to cooperate with the SEC."
McClendon's well investment program, which dates to 1993 when Chesapeake went public, gained prominence last month amid new reports that McClendon took out more than $1 billion in loans to cover his well investments. Some of those loans came from a group that was planning to buy Chesapeake assets.
Chesapeake has opened its own review of the program, and the Internal Revenue Service is also looking into it. The company's board said last week that it will end the well-investment program in June 2014. And this week, the company said it will remove McClendon as chairman of the board and seek a nonexecutive candidate to lead the board. McClendon will remain CEO.
Also on Thursday, Bloomberg News, citing a court filing, reported that McClendon agreed to sell $88 million of his personal oil and gas interests to investment vehicles created by Wachovia Corp. three weeks after his company used the bank in a similar $600 million deal. The same Wachovia bankers worked on both August 2008 transactions, which involve the sale of future oil and gas production in return for an immediate payment, according to documents filed by Chesapeake last year in a New York federal court.
The deals came after a separate January 2008 Wachovia transaction, called a volumetric production payment, or VPP, that yielded McClendon $44 million, the documents show.
"It's in the interest of the other parties to give him a break on his transaction if they get a break on larger transactions with the company," John Coffee, a law professor at Columbia University who has written on corporate governance, told Bloomberg. "There's a concern," especially if the transactions weren't disclosed to shareholders, he said.
McClendon disclosed in an SEC filing April 26 that he had loans of $846 million outstanding on his personal holdings as of Dec. 31.