Chesapeake Energy Corporation Charged with Fraud, Racketeering

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Michigan Attorney General Bill Schuette is charging Chesapeake Energy Corporation (NYSE:CHK) with felony counts of fraud and racketeering for allegedly canceling hundreds of leases under false pretenses during the state’s brief 2010 oil and gas boom, reports Brian Grow and Joshua Schneyer for Reuters (h/t ZeroHedge).

“I will defend and protect the taxpayers of Michigan in the face of fraudulent business practices,” said Schuette. “Scamming hardworking Michigan citizens is not how we do business in this state.”

Chesapeake used leases like unpaid options: Michigan AG

Schuette says that Chesapeake Energy Corporation (NYSE:CHK) signed leases with as many as 800 people, and then canceled all but 30 of them. The state AG also alleges that Chesapeake told landowners that the presence of a mortgage was grounds for cancellation, but had previously told them that mortgages didn’t present a problem when it was signing the deals.

If the charges are true, it means that Chesapeake Energy Corporation (NYSE:CHK) essentially had uncompensated options to use up to 800 plots of land, while the landowners were unable to secure other deals with rival oil and gas companies. Chesapeake has not yet made a comment on the accusations, and it will be arraigned on June 25.

Chesapeake also facing antitrust allegations in a related case

These new charges only add to Chesapeake Energy Corporation (NYSE:CHK)’s legal problems in Michigan. The energy company has already been hit with anti-trust charges for allegedly colluding with Delaware-based Encana Corporation (NYSE:ECA) (TSE:ECA) to drive down prices at a public auction for oil and gas rights. The two companies paid less than $40 per acre during the auction and noticeably didn’t bid heavily against each other during the process. They had paid more than $1500 per acre at a similar auction earlier in the year, and Encana has settled with the state of Michigan for $5 million.

Former Chesapeake Energy Corporation (NYSE:CHK) CEO Aubrey McClendon was eventually pushed out by the board (with a little help from Carl Icahn), and his reputation is certainly worse for wear, but Chesapeake has maintained its innocence in the matter. The company held an internal investigation that cleared it of all charges, but Schuette wasn’t impressed.

“The importance of independent – rather than internal – investigations cannot be emphasized enough in a case involving antitrust bid-rigging allegations. Our thorough, independent investigation into these serious allegations will continue,” said Schuette’s spokesperson.

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