Michigan Attorney General charges Chesapeake Energy with rackete - Beckley, Bluefield & Lewisburg News, Weather, Sports

Michigan Attorney General charges Chesapeake Energy with racketeering, fraud for canceling leases

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Michigan's attorney general has added racketeering and fraud to the charges against Oklahoma-based Chesapeake Energy, claiming the company victimized private landowners in the northern part of the state.

Chesapeake has denied wrongdoing.

“We believe this action has no merit and we will vigorously contest these baseless allegations," Gordon Pennoyer, director of strategic communications for Chesapeake, said in an email Friday.

Michigan Attorney General Bill Schuette, however, alleges Chesapeake directed its land agents to recruit landowners in Northern Michigan to lease their property to Chesapeake in the summer of 2010, telling them existing mortgages wouldn't be an obstacle.

He previously filed an antitrust complaint against the energy giant.

"Later, when competition from competitors had stopped and Chesapeake decided that Michigan's oil and gas prospects were not as lucrative as it liked, Chesapeake ordered mass cancellations based on the existence of those mortgages as well as other pretextual reasons," the complaint stated. "The massive, orchestrated nature of the scheme indicates that Chesapeake entered into those leases knowing that it would cancel them ... a scheme known as 'cold drafting' in the industry."

Schuette said landowners relied on the leases, "in some cases spending the promised lease money before receiving it, and in many cases turning down other potential lessors."

Schuette alleges that Chesapeake's actions prevented its competitors from leasing the land and said Chesapeake signed between 700 and 800 leases, but honored fewer than 30.

Chesapeake was charged with one count of conducting criminal enterprises, a felony punishable by a fine of up to $100,000, and eight counts of false pretenses ($1,000 to $20,000), also a felony but punishable by a fine of $10,000 per count or three times the value of the money or property involved, whichever is greater.

Representatives from Chesapeake are scheduled to be arraigned on June 25, 2014 at 10:30 a.m. before Cheboygan County's 89th District Court

In March, Schuette's office charged Chesapeake and a division of Calgary-based Encana with one count of anti-trust violation and one count of attempted anti-trust violation in Cheboygan County Court, alleging they had conspired to avoid a bidding war in Michigan's twice-yearly public auctions as well as private negotiations for oil and gas leases, causing lease prices to plummet drastically over a five-month period in 2010. The alleged violations, revealed in a series of emails discussing an agreement to split up Michigan counties so each company would be an exclusive bidder for both public and private leases in specific areas, was uncovered by the Reuters news agency in 2012.

The state maintains the alleged conspiracy was a key driver behind the state-held lease price in Michigan going from $1,510 per acre in May 2010 to less than $40 an acre at the October 2010 auction.

Encana has since settled, pleading no contest to one count of criminal attempted antitrust violations, a misdemeanor, and paying a $5 million fine.

A preliminary examination of the antitrust charges against Chesapeake recently concluded, but Judge Maria Barton has ruled on whether the case will be bound over to circuit court and set for trial. Schuette added an additional count of anti-trust violation, a misdemeanor, to the charges against Chesapeake based on evidence presented during the preliminary exam.