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Continuing Debt Troubles Mean Investors Should Avoid Chesapeake For Now

By Vatalyst:

In mid-April, The Shareholders Foundation, a private, non-traded firm that acts as a securities class action manager for investors, announced a lawsuit on behalf of a Chesapeake Energy (CHK) shareholder, alleging breach of fiduciary duty, material disclosure violations, and other wrongdoing by Chesapeake. This appears related to news earlier this week that Chesapeake CEO Aubrey McClendon received loans of over $1 billion dollars against his stakeholder interest in certain of the company’s wells. The loans were intended to fund his responsibility for drilling costs.

While granting CEOs interest in producing wells is not infrequent among energy stocks, the extent to which McClendon borrowed under what Chesapeake calls “The Founders Well Participation Program”, coupled with the Chesapeake board’s apparent failure to fully disclose these loans, signals trouble for the company. Investors with a long memory will recall that similar loans caused trouble for McClendon and Chesapeake

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