Chesapeake Energy Corporation (NYSE:CHK) confirmed investigation launched by the United States Department of Justice (DOJ) against the company in connection with its transactions in purchasing some oil and gas land in Michigan.

Chesapeake Energy

Based on the report published by Reuters, the DOJ issued a subpoena to the second largest oil and natural gas producer in the country, to submit all paperwork related to the transaction to find out if Chesapeake Energy Corporation (NYSE:CHK) committed antitrust violations. Apart from the DOJ, state government agencies also required the company to submit documents and information regarding oil and gas rights dealings in Michigan.

On July 3, 2012, Reuters reported that Chesapeake Energy Corporation (NYSE:CHK) and EnCana Corporation (USA) (NYSE:ECA) top executives tried to avoid bidding against each other in public land auctions in Michigan in 2010. The report was based on e-mails exchanges between Aubrey McClendon, Chesapeake CEO, and Jeff Wojahn, president of Encana.

McClendon wrote in an e-mail dated June 16, 2010 to one of his deputies that its time “to smoke a peace pipe” with Encana “if we are bidding each other up.” In response, the deputy executive informed McClendon that he contacted Encana to discuss strategies on how to avoid bidding against each other on entities they are both working.

Encana admitted discussing a joint venture in Michigan with Chesapeake Energy in 2010 but decided not to pursue the transaction. David O’Brien, chairman of the board of directors of Encana, promised to immediately investigate the issue.

Following the report, Michigan Representatives, Diane Slavens and Charles Smiley, called government officials to intensify their investigations on possible conspiracy between the two companies to avoid bidding against each other in their transactions to purchase lands in the state.

Rep. Slavens and Rep Smiley filed separate resolutions urging Michigan’s state attorney general and the state’s Department of Natural Resources to “work with the appropriate federal authorities and employ all available resources to investigate alleged price fixing and collusion among natural gas developers, and vigorously pursue damages to which the State of Michigan and impacted citizens are entitled.”

The Michigan Department of Natural Resources, which supervises the state land auctions, and the attorney general’s office started investigating the issue during the latter part of June.

Based on the quarterly report filed by Chesapeake to the Securities and Exchange Commission (SEC), the company received the subpoena from the DOJ on June 29. The filing also revealed the company is conducting internal reviews regarding the issue, and it is cooperating with the investigations.

Darren Bush, a former antitrust lawyer from the DOJ, and an antitrust law professor at the University of Houston, said the Justice Department is moving criminally against the company and “they are working their way through the grand jury process to potentially serve up indictments.”

Under the Sherman Act, business competitors are prohibited from price-fixing, bid rigging and market allocations. Any company caught violating any of the prohibitions is required to pay as much as $100 million for each violation.

Chesapeake has been surrounded by numerous negative controversies this year, which led to the governance changes within the company. McClendon stepped down as chairman of the company, and four of its board of directors were replaced.

Chesapeake’s stock is down by 2.9 percent at $ 19.11 per share during the afternoon trading (1:20 PM, ET) at the New York Stock Exchange on Monday, August 13.