Chesapeake review finds no intentional misconduct by McClendon

Results of the previously announced review of financing arrangements between Chesapeake Energy Corp. (NYSE:CHK) co-founder, CEO and president, Aubrey K. McClendon and various related entities and third parties, have turned up no intentional misconduct, the company said Wednesday.

McClendon came under fire for borrowing hundreds of millions of dollars from companies with which Chesapeake and McClendon struck deals, thus raising concerns of shareholders.

Aubrey McClendon

According to the statement released by the Oklahoma City -based company, the review, led by the Audit Committee of the Board with the assistance of independent counsel, has been substantially completed.

Among the transactions reviewed were the 2008-2012 financing arrangements between EIG Global Energy Partners (EIG) and affiliates of McClendon regarding financing of his participation in the Founder Well Participation Program (FWPP), as well as the preferred stock investments by EIG in CHK Utica LLC and CHK Cleveland-Tonkawa LLC. The review of the financing arrangements did not reveal any improper benefit to Mr. McClendon or increased cost to the company as a result of the overlap in the financial relationships.

The review also covered:

  1. other relationships in which both McClendon and the company conducted business with the same financial institutions;
  2. the trading activities of the Heritage Hedge Fund (co-founded by McClendon) through 2007, when the Heritage Hedge Fund ceased operations; and
  3. other matters, including issues regarding administration of the FWPP, and a 1998 loan to McClendon by then Board member Frederick B. Whittemore.

“Based on the documents reviewed and interviews conducted, no intentional misconduct by McClendon or any of the company’s management was found by the Board concerning these relationships and/or these transactions and issues,” the company commented.

Chesapeake’s statement reiterated that the impending retirement of McClendon is not related to the Board’s review of his financing arrangements and other matters.

Citing “philosophical differences,” McClendon agreed to retire from the company on April 1, 2013 after 24 years. He will continue to serve as CEO until the earlier of his successor being appointed and April 1, 2013.

In its statement today, Chesapeake also announced that its Board of Directors has concluded that the company did not violate antitrust laws in connection with the acquisition of Michigan oil and gas rights in 2010. The company previously reported that in June 2012 it had received a subpoena duces tecum from the Antitrust Division, Midwest Field Office, of the United States Department of Justice, and demands for documents and information from state governmental agencies, investigating possible antitrust violations arising from 2010 leasing activities in Michigan. The company has been responding to these requests. The Board commenced its own investigation of these allegations in June 2012. The Board based the conclusion it announced today on a thorough review conducted independently by outside counsel, and on Chesapeake’s cooperation with the Department of Justice.

 

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