Special Report: Chesapeake CEO took $1.1 billion in shrouded personal loans

Comments (21)
jcfl wrote:

and we’ll all be surprised when chesapeake goes belly up and mcclendon walks away with a billion dollars. enron here we come.

Apr 18, 2012 8:29am EDT  --  Report as abuse
Tiu wrote:

Will he put himself or his investors first? His investors of course, he is a professional investment specialist. What could possibly go wrong?

Apr 18, 2012 9:00am EDT  --  Report as abuse
Harry079 wrote:

“In October 2008, just after the financial crisis erupted with the bankruptcy of Lehman Brothers, he was forced to sell more than 31 million Chesapeake shares for $569 million to cover margin calls from those brokers.”

If the Board of Directors hasn’t run this guy out of town after all these loans and secret deals then let the chips fall where they may.

Again in the end it will be the employees and shareholders the will get the short end of the stick when the the dice inevitably come up snake eyes.

Apr 18, 2012 9:26am EDT  --  Report as abuse
JL4 wrote:

jcfl – you forgot to add that he’ll likely walk away with that billion tax free.

Apr 18, 2012 9:31am EDT  --  Report as abuse
fromthecenter wrote:

And of course he would never do anything to make the price of natural gas go up! His main goal in life is too keep it down so the nation can rely on a cheap natural resource.

Apr 18, 2012 10:36am EDT  --  Report as abuse
USAPragmatist wrote:

Just another example of a rich energy guy wanting more and more and more money. Isn’t a billion enough? Meanwhile the rest of us around the median income, struggle to have a small house and decent car. And those below the median are lucky to have a roof over their heads and food in their bellies.

This guy is the type of person the GOP and Romney fight for, after all he needs another tax break to fund these risky/shady investments. A billion is not enough if you ask them.

Apr 18, 2012 11:37am EDT  --  Report as abuse
AlkalineState wrote:

This outfit is doomed. They’ve already sold half of their U.S. oil assets to China. They’re the Hummer of the oil business.

Apr 18, 2012 11:47am EDT  --  Report as abuse
JL4 wrote:

No, no, no, fromthecenter, it’s all Obama’s fault. He alone is responsible for the prices of natural gas and oil. It has NOTHING to do with the business ethics of American CEOs (sarcasm).

What a surprise it will be when Chesapeake hits the weeds, and the public is left holding the $bag, while McClendon takes his cut of the dirty dealings – legally – and heads off to the tropics….to create more jobs with his profits. (more sarc).

But there’s a bright side! I hear Rosetta Stone is having a half price sale on languages from Emerging Markets and China.

Apr 18, 2012 12:03pm EDT  --  Report as abuse
Harry079 wrote:

USAPrag:

I could not agree with you more. I knew someday it what happen!

:0)

Apr 18, 2012 12:06pm EDT  --  Report as abuse
shahn wrote:

Time to dump all Chesapeake stock. It’s quite clear from this article, and from taking into consideration natural gas storage facilities are near capacity, that this company will soon fold. Accounting tricks like those described in this article are almost always a last-ditch effort by a company to forestall it’s inevitable collapse.

Apr 18, 2012 12:38pm EDT  --  Report as abuse
NewsDebbie wrote:

Why there is a difference in business and governing. Why success in one is not guaranteed success in another.

Apr 18, 2012 1:50pm EDT  --  Report as abuse

beautiful… this is free enterprise… it is bankers’ job to figure out this problem… great…

Apr 18, 2012 2:59pm EDT  --  Report as abuse
AlkalineState wrote:

Chesapeake = MF Global of the oilfield.

“I did not embezzle investor funds. I simply lost them. In a bank. In the Cayman Islands. And Switzerland. And Dubai.”

Apr 18, 2012 3:43pm EDT  --  Report as abuse
gregbrew56 wrote:

The way the article reads, it appears that he took out a loan to buy the collateral he used to take out the loan. Am I missing something? Are there tax advantages to this transaction that provided a benefit?

Anybody else confused?

Apr 18, 2012 4:10pm EDT  --  Report as abuse
Tiu wrote:

@gregbrew56 the way to play the game is to off-shore it…

http://gregpytel.blogspot.co.uk/2012/04/how-city-ruined-british-industry.html

and it works for other nations too. A legacy of Bush, B Liar and Basel II.

Apr 18, 2012 4:36pm EDT  --  Report as abuse
matthewslyman wrote:

ON THE ONE HAND:~~~

> “Chesapeake says the well plan is a uniquely powerful incentive because it aligns McClendon’s personal interests with those of the company’s.”

ON THE OTHER HAND:~~~

> “The company also said that McClendon’s share of “related assets” pledged as collateral – such as business data and hedging contracts associated with wells – is completely separate from similar assets owned by Chesapeake. That means Chesapeake would not become entangled should McClendon default, the company said.
Chesapeake “does not have an interest in the (McClendon’s) related assets … and Mr. McClendon does not have an interest in the company’s related assets,” general counsel Hood said in a statement.”

~~~~~~~

If anyone can show me a way to fully reconcile these two statements, I’ll show them a reason why McClendon and his supporters shouldn’t be in jail, or why these fellows shouldn’t be subject to censure. So how does he hold it all together?

~~~~~~~

> “McClendon continues to treat his employees well. In recent years, he built a 50-acre red-brick campus in Oklahoma City as Chesapeake headquarters. It boasts a 72,000 square-foot state-of-the art gym, visiting doctors who provide lunchtime Botox treatments for employees, and dentists to whiten teeth.”

How are botox and teeth-whitening treatments relevant here? Why should workers outside the OK City head office or Chesapeake shareholders effectively subsidize botox & white teeth for McClendon’s inner circle? Does working in Chesapeake’s head office naturally blacken the office-workers’ teeth or something? Occupational health hazard??? It seems to me like he’s bribing Chesapeake’s inner circle to support him… Like, he wants them to support him for something OTHER than boosting Chesapeake’s raw performance as a going concern, and for something OTHER than his job performance.
Even if I’m wrong about these motivations, botox and teeth-whitening as free “perks” certainly demonstrate an unhealthy obsession with the company’s IMAGE…

Apr 18, 2012 6:00pm EDT  --  Report as abuse
matthewslyman wrote:

@gregbrew56: I thought the same. How can he sustain all these ongoing losses/ front-loaded costs? Through loans? But the loans are borrowed against that 2.5% stake in the wells as collateral… This seems a bit circular until you realise that McClendon is NOT purchasing the legal title to these wells.

I think the answer is that in years when their CEO exercises this option, Chesapeake freely donates a legal title to 2.5% of the costs and profits of each well to their CEO. McClendon is using that legal title as collateral to secure the loans that are required to finance the front-loaded costs. If he chooses to append this deal to his pay package, he is simply given the legal title along with all of the associated costs and profits.

So from the perspective of any normal hard-working person, McClendon and his “estate” (heirs etc.) are effectively getting billions of dollars in future benefits in addition to basic wages and bonuses, for nothing other than doing their job. By “virtue” of the damage that McClendon could do to Chesapeake if he didn’t.

Basically, it’s just a convoluted way for Chesapeake to give a free 2.5% stake in their entire company to their CEO without having to declare this to the SEC.

Now if McClendon holds a 2.5% stake in each and every Chesapeake well, and the data associated with those wells is held as collateral against these business-within-a-business personal-slush-fund loans (these data being disclosed under any loan default by McClendon); then it’s beyond me how those are not the exact same data that constitute a large proportion of Chesapeake’s value proposition as a company. This whole scheme leaves Chesapeake at risk of losing their IP to an asset stripper via a desperate bank, for a mere 2.5% of the value of their company!

If it seems like there’s no integrity in this deal, and no integrity in McClendon no matter which way you look at it; then that’s because there isn’t. If CEOs like McClendon had any real integrity, deals like this would be completely unnecessary.

Apr 18, 2012 6:32pm EDT  --  Report as abuse
AlkalineState wrote:

It’s just shareholder money. Shareholders will believe anything. If they didn’t want us executives to steal their money, they wouldn’t keep sending it. Watch, when it comes time for say-on-pay this year, and they vote on my compensation package, they’ll even give me a raise. I’m telling you. These people are STUPID. Just wish there were more of them.

Apr 18, 2012 7:03pm EDT  --  Report as abuse
libertadormg wrote:

Everyone needs to read Daniel Yergin’s tell-all book The Prize also available on a 8 hour PBS series through YouTube at http://www.youtube.com/watch?v=Qspu35JG59Q drills down to the DNA of big oil. McClendon is merely the poster boy for a cartel that feel entitled to take what they want.

Apr 18, 2012 8:50pm EDT  --  Report as abuse
REMant wrote:

It seems to me there are easier ways to take care of the situation

Apr 18, 2012 9:19pm EDT  --  Report as abuse
AlkalineState wrote:

It’s a bit weird that a billionaire even NEEDS personal loans. What is he, remodeling a bathroom and his current billions won’t cover it?

I call bullschidt on this whole thing. There’s some stealing going on at Chesapeake, in the form of some very convoluted money transfers and ‘leverage buybacks’. The author of this article is trying to be professional about it and not get Reuters sued. But Chesapeake can sue me if they want. Embezzlement is embezzlement.

Apr 19, 2012 12:16pm EDT  --  Report as abuse
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