Reuters: Chesapeake Board Gave McClendon Permission to Trade, Banned Him From Running Hedge Fund

  • Joe Wertz

Scott Detrow / StateImpact Pennsylvania

Aubrey McClendon’s latest employment contract gave the CEO permission to do what he was already doing: trading commodities for himself, Joshua Schneyer and Jeanine Prezioso with Reuters report.

Giving the CEO explicit license to play the markets represented an extraordinary incentive that enhanced one of corporate America’s most generous compensation plans and reinforced the unique treatment afforded to McClendon by Chesapeake.

The 2009 contract banned the CEO from taking an active role in a hedge fund, Reuters reports, but the agreement came months after McClendon’s personal hedge fund shut down.

The contract raises new questions about what Chesapeake board members knew of McClendon’s personal investments, and whether his dealings might be at odds with his fiduciary responsibilities as head of the second-largest natural gas producer in the United States.

Such trading isn’t usually allowed at energy companies because of potential conflicts of interest.

The 2009 contact extends five years and is the first to specifically mention hedge funds or commodity market investment, according to Reuters. McClendon and two board members wouldn’t comment to the news service, and it’s unclear why the company changed the CEO’s contract.

The revisions could indicate they were aware of McClendon’s personal hedge fund and worried that such a side business might run afoul of shareholders, according to legal experts who reviewed McClendon’s current and prior contracts.

From 2004-2008, McClendon and Chesapeake co-founder Tom Ward — now CEO of SandRidge Energy — ran the $200 million Heritage Management Company LLC hedge fund from within the natural gas giant’s Oklahoma City headquarters, Retuers reported last week.

Chesapeake’s board hasn’t said whether it knew about Heritage or whether it vetted the hedge fund’s trading for any conflicts. Ward said he couldn’t recall whether the fund was disclosed. Even though the company still allows McClendon to trade in commodities, the 2009 agreement does signal that it was tightening its grip to some degree.