A group of Chesapeake shareholders, trying to prevent what they claim could be "irreparable injury" to the company, are requesting that a judge postpone Chesapeake's annual meeting.
In a 189-page filing Tuesday in federal court, the plaintiffs laid out an argument for delaying the June 8 shareholder meeting in Oklahoma City until the company corrects its proxy statement so that it contains "information which is full and complete and not misleading."
Read the injunction request filed by shareholders
Specifically, the lawsuit alleges that the proxy statement released to shareholders last week did not fully disclose critical and newly disclosed information concerning CEO Aubrey McClendon's compensation, as well as, "the existence, extent and details of McClendon's indebtedness to third parties who have financed [his] investment in company wells."
Over the last month, reports have revealed that McClendon took out more than $1 billion in personal loans to help cover his operating costs in a unique company perk, the Founder Well Participation Program. The program, in place since 1993, allows McClendon to invest in and then claim a 2.5 percent stake in every well that Chesapeake drills.
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Chesapeake has defended the well participation program, stating that it helps to ensure that McClendon's interests are aligned with the company's, and that it was approved by shareholders, most recently in 2005.
McClendon reportedly used his stake in Chesapeake wells as collateral in obtaining the loans, which, to a large extent, came from companies that were also doing business with Chesapeake. The financing arrangement raised questions about a possible conflict of interest, and led both the Securities and Exchange Commission and IRS to open investigations. Chesapeake's Board of Directors, which claimed only to have been "generally aware" of the loans, said that it also would review the financing, and then announced that McClendon would step down as Board chairman, once a new, independent, non-executive chairman could be selected.
Additional reports followed, revealing that McClendon and his former partner Tom Ward ran a hedge fund from 2004 to 2008. The fund reportedly traded in the same commodities that Chesapeake produces, raising more questions about conflicts of interest, and leading to the filing of at least a dozen lawsuits.
Tuesday's filing asserts that shareholders cannot make informed votes in their proxies without corrected information. The plaintiffs are requesting detailed documents be produced by next Monday, May 21, and that McClendon and another officer with knowledge of McClendon's financial dealing be deposed no later than may 25, a week from Friday.
A request for comment from Chesapeake spokesmen was not immediately answered Tuesday night.