Chesapeake in SEC probe over chief’s pay

Chesapeake Energy and Aubrey McClendon, its outgoing chief executive, are under investigation by the Securities and Exchange Commission, the financial regulator, over his controversial remuneration plan, the company disclosed on Friday.

In its annual 10-K report, Chesapeake said the Fort Worth regional office of the SEC said last May it had started an informal inquiry, and in December this had turned into an investigation.

The SEC has issued Chesapeake with subpoenas for information and testimony. However, the step up from informal inquiry to formal investigation is a technical move that does not necessarily imply an increased intensity of the regulator’s scrutiny.

The company said the SEC was investigating concerns over the “founder well participation programme”, a plan that allowed Mr McClendon to take 2.5 per cent stakes in all the wells drilled by the company during a given year.

After Reuters reported last year that Mr McClendon had borrowed more than $1bn to fund his investment in those well stakes, investors successfully pushed for a shake-up of the board, and the company announced it would end the programme in June 2014.

Chesapeake said shareholders had launched a number of legal actions against it, alleging breaches of securities law, misstatements of regulatory filings and failure to make proper disclosures – as well as “breaches of fiduciary duties, corporate waste and unjust enrichment”.

The company said the SEC was investigating “among other things, certain of the matters alleged in the foregoing lawsuits”.

Chesapeake’s board conducted a 10-month review of Mr McClendon’s personal financial dealings, and concluded last month that there was no evidence of “intentional misconduct”.

In particular, it addressed concerns that Mr McClendon had borrowed from EIG Global Energy Partners, a private equity group that also invested in Chesapeake subsidiaries.

The board said its investigation of the dealings with EIG “did not reveal any improper benefit to Mr McClendon or increased cost to the company as a result of the overlap in the financial relationships”.

Mr McClendon announced in January he would retire from the company on April 1, saying he had “philosophical differences” with the board over the company’s future.

In its filing, Chesapeake said the company and Mr McClendon were “providing information to the SEC in connection with this matter”.

Since last year the regulator has been working through documentation provided by Chesapeake.

The company added that it was “also responding to related inquiries from other governmental and regulatory agencies and self-regulatory organisations.”

In early afternoon trading in New York, Chesapeake shares were down 2 per cent at $19.79, having lost 20 per cent of their value in the past 12 months.