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Lawsuit Against Chesapeake Energy's Aubrey McCledon

Undisclosed Loans Spark Shareholder Anger

Written by Brianna Panzica
Posted April 20, 2012

After a Reuters report revealed an undisclosed $1.1 billion in loans by Chesapeake Energy’s (NYSE: CHK) CEO Aubrey McClendon, shares have struggled and a lawsuit has arisen.

McClendon took out personal loans and used company stakes as collateral in order to fund a 2.5% stake for himself in each of the company’s wells.

Once shareholders learned of this, problems began.

Deborah Mallow IRA SEP Investment Plan filed the lawsuit in the U.S. District Court of Western District of Oklahoma.  It was filed as a potential conflict of interests and was sparked by the secretive nature of these loans.

The lawsuit requests that all information regarding the loans is disclosed to shareholders:

“This action is brought to address material disclosure violations permitted by the board of directors and to ensure that any damages suffered by Chesapeake by reason of these violations are borne by the individual defendants, and not by Chesapeake and its innocent shareholders.”

The company fell $500 million on Wednesday, when the Reuters article disclosed the borrowing.

EIG Global Energy Partners is Aubrey McClendon’s main personal lender, and some believe that the company has received perks from Chesapeake.

McClendon’s ethical decisions are being questioned as a result of the situation.  Though what he did was legal under the Founder Well Participation Plan, enacted in 1993, he put his shareholders in a difficult position.

Shares of Chesapeake dropped 10.2% after the news leaked on Wednesday.  Today, shares are down 2.2% to $17.60.

That’s all for now,

Brianna


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