Chesapeake Energy CEO Aubrey McClendon opened Wednesday’s first-quarter earnings call with an apology for “distractions” caused by questions into his personal loans.
McClendon secured those loans — up to $1.1 billion, Reuters reported — with well stakes, which he acquired through a controversial CEO perk that allowed him a personal stake in every well Chesapeake drilled.
What McClendon didn’t mention: a $200 million hedge fund, which Reuters says he ran from inside Chesapeake.
Analysts did not ask any questions about potential conflicts during the 90-minute call with McClendon, reports The Oklahoman’s Jay Marks.
But others have questions, including U.S. Sen. Bill Nelson, D-Florida, who’s asking the Justice Department to investigate for potential fraud and price manipulation.
Chesapeake’s stock fell almost 15 percent Wednesday after the hedge fund news and a disappointing earnings report.
McClendon wouldn’t comment to Reuters. The other hedge fund principal, Tom Ward —a Chesapeake co-founder and current CEO of SandRidge Energy — said there was nothing wrong with the hedge fund arrangement.
There’s no evidence that either used inside knowledge, but Forbes’ Christopher Helman says the hedge fund, which wasn’t disclosed to shareholders, appears to violate McClendon’s fiduciary duty to Chesapeake. In short: Shareholders’ interests come first, Helman writes:
If the co-founders of the company identified new ways to profit from trading natural gas, why didn’t they present that opportunity to the company instead of keeping it for themselves?
This has raised a host of questions. Did they profit off of non-public information about Chesapeake’s trades? Were they front-running? Did the hedge fund pay rent to Chesapeake for being allowed to operate from a Chesapeake building?
Private investments — restaurants, real estate, NBA teams — are one thing, Helman argues:
But when a business opportunity involves natural gas, and the opportunity is pursued from within Chesapeake’s offices, it seems like shareholders have been cheated.