May 2, 2012 / 9:11 PM / 7 years ago

Senator Nelson seeks probe into Chesapeake Energy

WASHINGTON (Reuters) - U.S. Senator Bill Nelson plans to ask the Justice Department to investigate Chesapeake Energy Corp for potential fraud and price manipulation, an aide to the lawmaker said.

Nelson’s request comes after Reuters reported on Wednesday that Chesapeake Chief Executive Aubrey McClendon ran a $200 million hedge fund that traded in the same commodities Chesapeake produces. A search of Chesapeake’s filings turned up no disclosure of his activities.

“In response to the reporting by Reuters, Senator Bill Nelson has asked his staff to formally request that the Justice Department’s Financial Fraud Enforcement Task Force investigate the Chesapeake Energy Corp matter to determine whether there is evidence of fraud, price manipulation, conflicts-of-interest, or other illegal activities,” said Ryan McCormick, a staff director for the Senate Finance subcommittee on fiscal responsibility.

A Chesapeake spokesman was not immediately available to comment.

McClendon has been under fire for his personal dealings. On Tuesday, the company said he would be stripped of his chairmanship following an earlier report by Reuters that he had taken out as much as $1.1 billion in personal loans on ownership stakes in wells he got through the company.

The disclosure about the loans has led to shareholder lawsuits, and it also has prompted inquiries by the U.S. Securities and Exchange Commission and the Internal Revenue Service.

Then on Wednesday, Reuters published its second investigation which revealed that McClendon and Chesapeake co-founder Tom Ward ran a hedge fund from at least 2004 through 2008. The hedge fund listed Chesapeake’s headquarters as its address and it had at least one Chesapeake employee on its staff.

In an earnings call on Wednesday, McClendon said he was “deeply” sorry for the turmoil caused by his personal dealings, and characterized many of the reports as “misinformation.

Experts say McClendon’s dual role as CEO of the second-largest natural gas producer and sponsor of a hedge fund that traded in the same commodities raises serious concerns about whether he may have violated his duty to Chesapeake shareholders.

Senator Bernie Sanders, a Vermont Independent, also weighed in on the latest revelations about McClendon on Wednesday, saying it raises serious concerns about a lack of transparency in the derivatives market.

“We... have got to prevent the obvious conflicts of interest that this report exposes and make our energy markets more transparent,” Sanders said.

“Under current law, CEOs are required to let the public know when they buy and sell large shares of their own company’s stock, but trading in energy futures and derivatives is kept hidden from the American public. This is simply unacceptable. The American people have a right to know this information.”

Both Sanders and Nelson, a Florida Democrat, have been vocal about concerns that energy speculators may be responsible for driving up high oil prices.

Last year, Sanders intentionally disclosed confidential data collected by the Commodity Futures Trading Commission which revealed that in June 2008, McClendon and Ward both held huge positions in natural-gas derivatives just as natural gas and oil prices were peaking.

Reporting by Roberta Rampton and Sarah N. Lynch; additional reporting by Matt Daily and Anna Driver; Editing by Gary Hill and Tim Dobbyn

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