WASHINGTON The embattled chief executive of Chesapeake Energy Corp. has hired a top defense lawyer to represent him in a securities regulatory inquiry into $1.3 billion in personal loans, three people familiar with the situation said.
CEO Aubrey McClendon has retained Marvin Pickholz, a partner with Duane Morris and a former assistant director of enforcement with the U.S. Securities and Exchange Commission. He is counseling McClendon in connection with the SEC inquiry into loans he obtained from an investment firm doing business with the natural gas company.
The SEC is looking into whether the loans posed a conflict of interest or should have been disclosed to shareholders.
The loans from investment funds managed by EIG Global Energy Partners enabled McClendon to participate in a special perk which awarded him as much as a 2.5 percent interest in every well drilled by Oklahoma City-based Chesapeake each year.
McClendon used the well stakes as collateral for the loans.
The SEC launched its inquiry soon after April 18, when Reuters reported on the loans to McClendon, who co-founded Chesapeake more than two decades ago.
Pickholz, an aggressive and tough-talking attorney, represented a key prosecution witness in the trial of homemaking doyenne Martha Stewart on obstruction of justice charges stemming from an insider trading investigation. He is also a frequent legal commentator on television news programs.
Pickholz, who also wrote a book on securities crimes published by Thomson Reuters' WestLaw division, declined to comment for this article.
"Marvin Pickholz certainly is a major, and a well-known litigator who has been on the scene for a number of decades, and his reputation is he's a very tough, aggressive, in-your-face type of litigator," said Bill Singer, a former Duane Morris partner who is now a partner at Herskovits PLLC.
"He's somebody who is not likely to be intimidated."
McClendon appears to be gearing up for a legal fight at a time when his control of Chesapeake has suffered a series of setbacks. Following the news about the loans from EIG, McClendon and Chesapeake's board have come under severe pressure from shareholders to overhaul company management and strategy.
In mid-May, the board announced it will replace McClendon as chairman and appoint an independent lead director. It voted to end the so-called Founder Well Participation Program, through which he receives his well stakes, in June 2014.
The board also launched an investigation of all financial transactions between McClendon and firms that have done business with Chesapeake.
On Monday, the company bowed to pressure from billionaire activist investor Carl Icahn and O. Mason Hawkins of Southeastern Asset Management, giving them authority to name four independent directors to the company's nine-member board.
The company has not said much about the SEC inquiry since confirming its existence on May 3. The inquiry is being led by the SEC's regional office in Fort Worth, Texas.
Working with Pickholz in representing McClendon is Matthew Taylor, head of Duane Morris' trial practice group, said one person familiar with the matter.
Taylor declined to comment through a Duane Morris spokesman.
A spokesman for McClendon declined to comment.
Pickholz has handled various high-profile matters over the years. He has served as counsel for Jack Atchison, the audit partner in the Lincoln Savings and Loan Association scandal in the early 1990s.
He also represented Douglas Faneuil, an assistant to Martha Stewart's stockbroker who acted as the star witness for the prosecution during her obstruction of justice case. Stewart, who was never charged herself with insider trading, was convicted in 2004 of lying to investigators about a stock trade and was sentenced to five months in prison.
Taylor represents a defendant in the SEC's case against the Reserve Primary Fund, which "broke the buck" during the financial crisis when its net asset value fell below $1 per share.
Meanwhile, Chesapeake has separately hired Bracewell & Guiliani and Patrick Craine, a partner in the firm's Dallas office, to address the SEC inquiry, several people familiar with the matter also said.
A spokesman for Chesapeake declined to comment. Bracewell & Guiliani did not return repeated requests for comment.
Craine used to work in the SEC's Fort Worth office.
Bracewell & Guiliani has previously worked for Chesapeake, including in 2008 when the SEC's corporation finance division began asking questions about the disclosure of benefits received by McClendon through the well perk program that are now at the center of the SEC probe.
Some investors and corporate governance experts have questioned whether it is appropriate for an investment firm that does business with Chesapeake to also provide financing to its chief executive. When Chesapeake's board announced it would end the well-drilling investment in 2014, it said it had not approved or reviewed the loans from EIG.
In an April 23 letter to investors in two of its energy-focused investment funds, EIG Chief Executive Officer R. Blair Thomas said it is "simply untrue" that there was any conflict of interest in its loans to McClendon and dealings with Chesapeake.
All told, McClendon has taken out loans worth $1.55 billion since 2009 from EIG and other lenders to fund his participation in the well drilling program. That perk enables him to receive a stake of up to 2.5 percent in all the wells Chesapeake drills in return for shouldering the same percentage of the wells' costs.
Reuters has also reported on several other potential conflicts of interest involving McClendon and his duties as Chesapeake chief executive. Those potential conflicts include borrowing money from a former board member and running a $200 million hedge fund out of his office that invested in the same commodities the company produces.