Chesapeake Energy Faces New Charges Over Michigan Leases

Chesapeake Energy Corp. (CHK), already facing antitrust claims in Michigan over bids on gas exploration rights, was charged with racketeering and fraud for allegedly lying to landowners about leases it took out on their property.

Michigan Attorney General Bill Schuette said in a statement today that Chesapeake, the second-biggest U.S. natural gas producer, tied up landowners in 2010 by telling them existing mortgages were no barrier to leasing their properties, then citing those same mortgages as justification for canceling almost all the leases after competition for them ceased.

“Chesapeake, therefore, obtained uncompensated land options from these landowners by false pretenses and prevented competitors from leasing the land,” the attorney general said.

The allegations announced today follow earlier accusations that the company colluded with a unit of Calgary-based Encana Corp. (ECA) to divide the Michigan counties in which they’d bid for exploration rights in 2010, driving down prices from $1,510 an acre for a May auction to less than $40 an acre in October.

Chesapeake, based in Oklahoma City, has denied those allegations. It has withdrawn from exploration in Michigan.

“Theories and speculation are not evidence,” its lawyers said in a state court filing last month after a hearing over whether the state had sufficient cause to pursue the case.

‘Baseless Allegations’

“This action has no merit and we will vigorously contest these baseless allegations,” Gordon Pennoyer, a spokesman for Chesapeake, said of the new charges in an e-mailed message today.

The charges were filed today in state court in Cheboygan, Schuette said. The town lies on the northern edge of Michigan’s Lower Peninsula.

Chesapeake representatives must appear at an arraignment there on June 25, the attorney general said.

The single racketeering charge lodged against the company is a felony punishable by a fine of as much as $100,000. Chesapeake also faces eight counts of false pretenses, each subject to a fine of $10,000 or three times the value of money or property involved, whichever is more. The antitrust charge levied earlier carries a top penalty of $1 million.

Encana last month agreed to pay $5 million to settle civil litigation over its leasing activities and to not contest a charge it tried to collude with Chesapeake.

The new case is Michigan v. Chesapeake Energy Corp., 2014-0076935-B, 89th Judicial District Court, Cheboygan County, Michigan (Cheboygan). The earlier case is Michigan v. Chesapeake Energy Corp., 14-0140-FY, 89th Judicial District Court, Cheboygan County, Michigan (Cheboygan).

To contact the reporter on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Andrew Dunn, Stephen Farr

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