Here Are More Major Troubles For Chesapeake Shareholders

U.S. Senator Bill Nelson will request the Justice Department to conduct an investigation into whether Chesapeake Energy Corp (NYSE:CHK) is guilty of fraud and price manipulation.

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In a fresh exposé Wednesday, Reuters alleged that Aubrey McClendon and Tom Ward, co-founders of Chesapeake, both ran a $200 million hedge fund from at least 2004 through 2008, and that this hedge fund allegedly traded in the same commodities that Chesapeake produced. The hedge fund’s address was the same as Chesapeake’s headquarters, and a Chesapeake employee figured on its rolls.

An earlier investigation by Reuters led to Chesapeake removing Aubrey McClendon from his chairmanship at the company Tuesday. Reuters had reported McClendon took out personal loans of $1.1 billion against the collateral of oil well stakes he obtained from the company.

“In response to the reporting by Reuters, Senator Bill Nelson has asked his staff to formally request that the Justice Department’s Financial Fraud Enforcement Task Force investigate the Chesapeake Energy Corp matter to determine whether there is evidence of fraud, price manipulation, conflicts-of-interest, or other illegal activities,” said Ryan McCormick, a staff director for the Senate Finance subcommittee on fiscal responsibility.

Experts have called into question the propriety of McClendon wearing two hats – one as CEO of a large natural gas producer, and the other as sponsor of a hedge fund trading the same commodities – and the serious issues of conflict of interest that this raises.

Under U.S. disclosure laws it is mandatory for CEOs to file details of their transactions in stocks of their own companies. However, these laws do not cover transactions in futures and derivatives of commodities such as natural gas and oil products produced by Chesapeake.

Senator Bernie Sanders, a Vermont Independent, was vocal on this glaring lack of transparency in the country’s regulations, saying, “Under current law, CEOs are required to let the public know when they buy and sell large shares of their own company’s stock, but trading in energy futures and derivatives is kept hidden from the American public. This is simply unacceptable. The American people have a right to know this information.”

Investing Insights: Must-Know Morning News Cheat Sheet for Investors: May 3rd, 2012.