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Chesapeake Faces Racketeering Trial in Michigan

Chesapeake Energy Corp. on Tuesday was ordered to proceed to trial in a Michigan court on one count of racketeering and 20 counts of false pretenses for allegedly defrauding private landowners in the summer of 2010.

Cheboygan District Court Judge Maria Barton issued the four-page order, announced by Michigan Attorney General Bill Schuette, who has pursued the case from the beginning. Schuette alleges that a subsidiary of the Oklahoma City-based operator defrauded northern Michigan landowners in 2010 (see Daily GPI, June 25; June 5).

According to the criminal charges, Chesapeake directed its agents to recruit multiple landowners to lease their land to the company in 2010. Although landowners apparently notified the agents of existing mortgages on the land to be leased before signing the leases, the agents apparently said the mortgages would not be a problem.

However, competition to secure leases stopped, and Chesapeake through its leasing agents, then canceled nearly all of the leases it had obtained "using mortgages and other bogus reasons, as the purported basis for the cancellation," according to the allegations. Schuette claimed that Chesapeake therefore obtained uncompensated land options from the landowners by false pretenses and prevented competitors from leasing the land.

Chesapeake was arraigned on June 25 on one count of conducting criminal enterprises (racketeering), which carries a maximum fine of $100,000. The company also faces 20 counts of false pretenses, with fines of up to $10,000 each, or three times the value of the money/property involved, whichever is more.

"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 a Chesapeake spokesman. "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."

A separate trial against Chesapeake is set for Dec. 2 before Barton to resolve antitrust violations. On July 10, Barton ruled that Chesapeake would face trial on one count of violating Michigan antitrust law for its alleged role in bid rigging at the October 2010 state oil and gas lease auction (see Daily GPI, March 6). The case carries a maximum fine of $1 million. Schuette said he plans to add one charge to the indictment later this year.

Encana Corp., which had been charged with colluding with Chesapeake in the 2010 bid-rigging case, has settled with the state (see Daily GPI, May 5).

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