Sustained Outrage

Cheating Chesapeake shareholders?

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We had a mention in Gazette Business Editor Eric Eyre’s story on the loss of 215 Chesapeake Energy jobs in Charleston of a class-action lawsuit against the company,CEO Aubrey McClendon (above), its officers and directors on behalf of Chesapeake’s shareholders.

Over at the West Virginia Business Litigation blog, Jeffrey V. Mehalic has posted a copy of the lawsuit, which Mehalic reports “alleges various securities laws violations that have caused Chesapeake’s stock to drop 80% from its offering price in July 2008.”

According to an announcement by one of the lawsuits involved, the suit alleges that a Registration Statement issued in conjunction with a Chesapeake stock offering was “materially false” because it failed to disclose the following:

— Chesapeake’s exposure to natural gas price declines had not been adequately limited by Chesapeake’s hedging actions prior to the Offering

— That Chesapeake had entered into hedging contracts with Lehman Brothers, an underwriter in the offering, though based on Lehman Brothers’ rapidly declining financial condition, it would be unable to fulfill its financial commitment

— Prior to the Offering, Chesapeake’s aggressive hedging activities had been significantly running up the price of natural gas and Chesapeake’s stock price

— Chesapeake’s lease brokers, had been aggressively bidding up the prices Chesapeake was obligated to pay in leases and royalty agreements

— Chesapeake was failing to write down impaired goodwill on the assets it was acquiring.