By Alex Cameron, 9 Investigates
OKLAHOMA CITY -- A federal agency has stepped up its investigation into the financial dealings of outgoing Chesapeake Energy CEO Aubrey McClendon.
Chesapeake Energy acknowledged Friday in its annual report that the Securities and Exchange Commission informed the company back in December that an "informal inquiry" the SEC opened in May 2012 was continuing as an investigation. According to the filing, the SEC has since issued subpoenas for information and testimony, and Chesapeake is complying with the requests.
Specifically, the SEC is investigating the Founders Well Participation Program (FWPP), a controversial company perk that allows McClendon to claim a small stake in every well Chesapeake drills, as long as McClendon pays his share of the operating costs. McClendon co-founded Chesapeake in 1989.
Shareholders approved the FWPP for a 10-year term in 2005, but it came under scrutiny last year, when published reports disclosed that McClendon had borrowed more than $1 billion against his stake in the wells, in order to finance his ongoing participation in the program. What's more, it was reported that McClendon got the loans from companies that, at the same time, were doing business with Chesapeake.
Chesapeake's board disclosed that it had been "generally aware" of McClendon's financing arrangements, but said it would conduct its own internal review of the matter. It also decided to terminate the FWPP 18 months ahead of schedule, in 2014.
At the end of January, Chesapeake, the nation's second-largest producer of natural gas, announced that Chief Executive McClendon would resign his position with the company by April 1, 2013, or whenever a replacement was found, whichever came sooner. Company officials stated that McClendon's departure was not related to any of the matters under investigation.
Two weeks ago, the board released the results of its internal review of the FWPP financing, concluding that there had been "no intentional misconduct" by Mr. McClendon.
The SEC investigation is not the only one Chesapeake mentioned in its annual report. The company is also cooperating with a probe initiated by the U.S. Attorney into the possible violation of antitrust laws in the 2010 purchase and lease of oil and gas rights in Michigan.
Chesapeake's board also reviewed the Michigan antitrust matter and said there was no wrong-doing.