September 9, 2014 / 5:01 PM / 5 years ago

Chesapeake Energy to face racketeering charges in Michigan trial

(Reuters) - Natural gas and oil producer Chesapeake Energy Corp (CHK.N) must face trial on charges of felony racketeering and using false pretenses related to its land-leasing practices, a state judge has ruled.

Chesapeake Energy Corporation's 50 acre campus is seen in Oklahoma City, Oklahoma, April 17, 2012. REUTERS/Steve Sisney

Cheboygan District Court Judge Maria Barton ruled on Monday that Oklahoma-based Chesapeake go to trial on one charge of racketeering and 20 counts of using false pretenses to allegedly defraud private landowners in the state during an oil and gas leasing boom in 2010. Barton ruled after a hearing last month. No trial date has been set.

State Attorney General Bill Schuette brought the charges against Chesapeake in June, alleging the company directed its leasing agents to lock up land positions in the state by offering signing bonuses to private landowners.

Later, when Chesapeake’s competitors in the region slowed down their leasing, Chesapeake’s agents allegedly canceled the deals, claiming that mortgages on the properties were grounds for not honoring the deals after earlier assurances that would not be an issue.

As a result, Chesapeake obtained “uncompensated land options from these landowners by false pretenses, and prevented competitors from leasing the land,” the state charged.

In a statement, Chesapeake said it believes the charges are without merit and expects to prevail at trial.

“We continue to believe the Attorney General is attempting to criminalize basic contract disputes,” said company spokesman Gordon Pennoyer. “Chesapeake remains focused on moving past these legacy issues from 2010 and executing our business strategies to drive profitable growth.”

The criminal charges against Chesapeake followed a 2011 investigation by Reuters into the company’s land-leasing tactics during a speculative leasing boom in the northern part of the state during 2010, including its use of a shell company to cancel land deals with more than 800 private landowners.

Chesapeake, which was then led by Chief Executive Officer Aubrey McClendon who later left the company amid allegations of mismanagement, has denied wrongdoing.

Schuette’s office said the racketeering charge is punishable by a fine of up to $100,000. The 20 counts of using false pretenses are punishable by fines of $10,000 for each count, or triple the value of the money or property involved, whichever is greater.

Chesapeake will also go on trial in Michigan on antitrust charges for its alleged role in bid-rigging at a state land auction in 2010, following an earlier ruling by Barton in July.

In that case, Chesapeake is charged with colluding with a competitor, Encana Corp (ECA.TO), to suppress land lease values in the state in 2010.

Michigan officials began looking into their activities in 2012 after a Reuters investigation found that executives from the two companies discussed proposals to divide bidding responsibilities in a state land auction and in deals with several private landowners. Chesapeake has denied any wrongdoing.

Encana reached a settlement with Schuette’s office earlier this year related to the antitrust charges.

Reporting by Joshua Schneyer; Editing by Jeffrey Benkoe

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