Cheboygan District Court Orders Chesapeake Energy Corp. to Proceed to Trial on Racketeering Charges

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September 9, 2014

LANSING - Michigan Attorney General Bill Schuette today announced Cheboygan District Court Judge Maria Barton has ordered Oklahoma-based Chesapeake Energy Corporation to proceed to trial on one count of Racketeering and twenty counts of False Pretenses for allegedly defrauding private landowners across Northern Michigan.

"We will uncover fraud wherever it exists and hold the perpetrators accountable, on behalf of the hardworking citizens of Michigan" said Schuette.  "We are confident in our case and prepared for trial."

On June 5, 2014, Schuette filed his second independent criminal case against Chesapeake Energy Corp.  The complaint filed by Schuette alleges that Chesapeake directed their agents to recruit multiple Northern Michigan landowners to lease their land to Chesapeake the summer of 2010.  It is alleged that landowners notified the agents of existing mortgages on the land to be leased before signing the lease, and the agents allegedly indicated the mortgages would not be a problem.

When competition from competitors stopped, Chesapeake – through its leasing agents including Oil Niagaran and a shell corporation called Northern Michigan Exploration – allegedly cancelled nearly all the leases, using mortgages and other bogus reasons, as the purported basis for the cancellation.  Schuette alleges Chesapeake therefore obtained uncompensated land options from these landowners by false pretenses, and prevented competitors from leasing the land.

Arraignment on the following charges occurred on June 25, 2014: 

  • One count of Conducting Criminal Enterprises (Racketeering), a felony punishable by a fine up to $100,000; and,
  • Twenty counts of False Pretenses, $1,000 to $20,000, a felony punishable by a fine of $10,000 per count, or three times the value of the money or property involved, whichever is greater.

Pending Antitrust Case

Chesapeake faces a separate trial on December 2, 2014 in Cheboygan Circuit Court to resolve allegations of anti-trust violations.  On July 10, 2014, Cheboygan District Court Judge Maria Barton ruled the company will go to trial for one count of violating Michigan antitrust law for its alleged role in bid-rigging at the October 2010 State oil and gas lease auction. The antitrust case carries a maximum fine of $1 million for the corporation.   

Schuette filed criminal charges against Chesapeake in March 2014 for alleged antitrust violations regarding private land leasing in the summer of 2010, and the state land auction held by the Department of Natural Resources in October 2010.  During the DNR's May 2010 auction, both Chesapeake and Encana purchased natural gas leases in Michigan.  In 2012, the Reuters news agency uncovered a possible conspiracy between the two companies' executives discussing an agreement following the May 2010 auction to split up Michigan counties where each company would be an exclusive bidder for both public and private leases.

In the five month period following the state's May 2010 auction, this alleged conspiracy may have been a key driver behind the state-held land lease price in Michigan going from $1,510 per acre in May 2010 to less than $40 an acre at the October 2010 auction and for private leasing to stop.    

Schuette filed one count of antitrust violation and one count of attempted antitrust violation against Chesapeake Energy Corporation on March 5, 2014 in Cheboygan County.  On May 9, 2014, following a week-long preliminary examination, Schuette filed one additional count of antitrust violation based on evidence presented during the preliminary exam, for a total of three charges in the antitrust case.

Schuette plans to move to add one additional charge in Cheboygan County Circuit Court later this year.  In her ruling, Judge Barton dismissed a second antitrust charge related to allegations the company conspired to bid-rig regarding individual landowners.  Barton also dismissed an alternative attempt charge regarding rigging bids to the private landowners, but that charge was only to be considered if the second charge was dismissed.

Ongoing Investigation

Attorney General Bill Schuette's investigation of Chesapeake Energy and their alleged crimes against Michigan landowners remains ongoing.  Schuette encourages those who may have been victims of Chesapeake to contact his Corporate Oversight Division toll-free at 877-765-8388.            

A criminal charge is merely an accusation, and defendants are presumed innocent until and unless proven guilty.

[ September 8, 2014 Opinion & Order by Judge Barton ]