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Court ordering Chesapeake
Energy trial for racketeering


By KEVIN WALKER
Michigan Correspondent  

LANSING, Mich. — Cheboygan County District Court Judge Maria Barton has ordered Oklahoma-based Chesapeake Energy Corp. to proceed to trial on one count of racketeering and 20 counts of false pretenses for allegedly defrauding private landowners in northern Michigan. 
“We will uncover fraud wherever it exists and hold the perpetrators accountable on behalf of the hardworking citizens of Michigan. We are confident in our case and prepared for trial,” Michigan Attorney General Bill Schuette said in a statement dated Sept. 9. The judge’s opinion and order is dated Sept. 8. No trial date has been set.
In her opinion and order, Barton wrote that Chesapeake misled landowners in 2010 by having its agents tell landowners in northern Michigan that having a mortgage would not be a problem as far as entering into an oil and gas lease was concerned but then later told the landowners that the mortgages were a problem after a hole came up dry. She also wrote that officials from two companies acting for Chesapeake testified at a hearing that normally a mortgage on a property isn’t, in fact, a problem as far as these leases were concerned.
It’s charged that after it was discovered that many of the leased properties were found to be unproductive, Chesapeake ordered its agents to find any excuse to void the leases, whether because of a mortgage or some other reason.  
It’s alleged that when competition from competitors stopped, Chesapeake, through its leasing agents Oil Niagaran and a shell corporation called Northern Michigan Exploration, canceled nearly all the leases, using mortgages and other bogus reasons as excuses. Schuette alleges Chesapeake obtained in this way uncompensated land options from the landowners by false pretenses and prevented competitors from leasing the land. 
Arraignment occurred on June 25 on one count of conducting criminal enterprises, or racketeering, a felony punishable by a fine of up to $100,000; and 20 counts of false pretenses, $1,000-$20,000, a felony punishable by a fine of $10,000 per count, or three times the value of the money or property involved, whichever is greater.
Chesapeake denies the charges. 
“This outcome is not unexpected given that the Attorney General’s burden was substantially lower than he will be required to prove at trial,” said Gordon Pennoyer, a spokesman for Chesapeake. “We continue to believe the Attorney General is attempting to criminalize basic contract disputes.
“Chesapeake remains focused on moving past these legacy issues from 2010 and executing our business strategies to drive profitable growth through financial discipline and the efficient development of our world-class assets.”
According to an article published in Reuters online Sept. 9, the criminal charges against Chesapeake followed a 2011 investigation by Reuters. According to the article, Chesapeake used a shell company to cancel land deals with more than 800 landowners. 
Chesapeake was then led by Chief Executive Officer Aubrey McClendon, who later left the company amid allegations of mismanagement, the article says.
Chesapeake is also facing a separate trial set for Dec. 2 in Cheboygan Circuit Court to resolve allegations of anti-trust violations. On July 10, Barton ruled the company would go to trial for one count of violating Michigan anti-trust law for its alleged role in bid rigging at the October 2010 state oil and gas lease auction. The antitrust case carries a maximum fine of $1 million for the corporation. 
Schuette filed criminal charges against Chesapeake in March 2014 for alleged antitrust violations regarding private land leasing in the summer of 2010 and the state land auction held by the Michigan Dept. of Natural Resources (DNR) in October 2010. During the DNR’s May 2010 auction, both Chesapeake and Encana bought natural gas leases in Michigan. 
A 2012 investigation by Reuters uncovered a possible conspiracy between the two companies’ executives discussing an agreement following the May 2010 auction to split up Michigan counties where each company would be an exclusive bidder for both public and private leases.  
According to the AG’s office, in the five-month period following the state’s May 2010 auction, this alleged conspiracy may have been a key driver behind the state-held land lease price in Michigan going from $1,510 per acre in May 2010 to less than $40 per acre at the October 2010 auction and for private leasing to stop.
Chesapeake denies any wrongdoing. 
Schuette’s office says the AG’s investigation of Chesapeake is ongoing and encourages those who may have been victims of Chesapeake to contact the AG’s Corporate Oversight Division toll-free at 877-765-8388.
9/19/2014