Antitrust Law Daily Former Chesapeake CEO indicted for rigging bids on oil, gas leases
Wednesday, March 2, 2016

Former Chesapeake CEO indicted for rigging bids on oil, gas leases

By Jeffrey May, J.D.

A federal grand jury in Oklahoma City has returned an indictment against Aubrey K. McClendon, the former chief executive officer of Chesapeake Energy Corporation, for conspiring with the head of a competing oil and gas exploration and production company to rig bids on the purchase of oil and natural gas leases and "producing properties" in northwest Oklahoma. The one-count indictment does not name Chesapeake, the competing company, or the competing company's CEO. This is the first case resulting from an ongoing federal antitrust investigation into anticompetitive conduct in the oil and natural gas industry, the Department of Justice announced on March 1 (U.S. v. McClendon, Case No. 5:16-cr-00043-M).

The 56-year-old McClendon, founder and CEO of American Energy Partners, was killed this morning in a one-car accident in Oklahoma City. In light of McClendon’s death, the indictment will likely be dismissed.

Both American Energy Partners and Chesapeake Energy Corporation issued statements about the incident. "It is with deep sadness that (American Energy Partners) confirms that earlier today, its founder, Aubrey K. McClendon died in a car accident on Midwest Boulevard in Oklahoma City . . . . We will deeply mourn his loss and please join us in expressing our condolences to his family."

Chesapeake “is deeply saddened by the news that we have heard today and our thoughts and prayers are with the McClendon family during this difficult time.”

According to the indictment, the conspiracy to suppress the prices that the companies paid to acquire certain leasehold interests and producing properties lasted from December 2007 until March 2012. A leasehold interest grants a lessee the right to develop the land and to explore for and extract oil and natural gas for a set length of time. In lieu of acquiring leasehold interests for undeveloped land, companies also compete to purchase interests in producing properties, which are tracts of land with one or more wells that are actively producing oil and/or natural gas.

The companies allegedly agreed not to submit bids for these leaseholds and producing properties in order to keep prices down. In exchange for not submitting bids for these leaseholds and producing properties, Chesapeake's competitor allegedly received a share of the leaseholds and producing properties purchased by Chesapeake.

Antitrust chief's statement. “While serving as CEO of a major oil and gas company, the defendant formed and led a conspiracy to suppress prices paid to leaseholders in northwest Oklahoma,” said William Baer, Assistant Attorney General in charge of the Department of Justice Antitrust Division. “His actions put company profits ahead of the interests of leaseholders entitled to competitive bids for oil and gas rights on their land. Executives who abuse their positions as leaders of major corporations to organize criminal activity must be held accountable for their actions.”

Response from counsel for McClendon. Prior to this morning’s incident, McClendon's lead lawyers Abbe David Lowell of Chadbourne & Parke and Emmet Flood of Williams & Connolly issued a statement, suggesting that the Justice Department “twisted” business practices well-known in the Oklahoma and American energy industries that enhanced competition and lowered energy costs to allege an antitrust violation that did not occur. However, there was no outright denial of the challenged conduct.

“In response to criticism of their past charging practices and in the name of a new policy to be tough on individuals, the prosecutors have wrongfully singled out Aubrey McClendon and have wrongly charged an innocent man,” the statement reads. “A charge is one thing. Proving the case is another. Starting today, Aubrey gets his day in court where we will show that this prosecutorial overreach was completely unjustified.”

Last month, Brent Snyder, Deputy Assistant Attorney General for criminal enforcement at the Antitrust Division, spoke on the topic of “Individual Accountability for Antitrust Crimes” at the Yale School of Management Global Antitrust Enforcement Conference. “Holding companies accountable and assessing large fines, alone, are not the only means, or even the most effective way, to accomplish our goal of deterring and ending cartels,” Snyder said in his remarks prepared for delivery. “Every corporate crime involves individual wrongdoing.”

Attorneys: Abbe David Lowell (Chadbourne & Parke) and Emmet Flood (Williams & Connolly) for Aubrey K. McClendon.

Companies: Chesapeake Energy Corp.

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