Chesapeake Energy Corp. secured oil and natural gas leases from up to 800 landowners in northern Michigan in 2010 when the industry flocked to what was believed to be a lucrative area for new development.
It ended up honoring less than 30 of them, according to prosecutors who Thursday filed racketeering and fraud charges against the Oklahoma City-based oil and natural gas producer.
“We believe this action has no merit and we will vigorously contest these baseless allegations,” Chesapeake spokesman Gordon Pennoyer said.
Michigan Attorney General Bill Schuette contends Chesapeake and its agents used a scheme known as “cold drafting” to obtain lease options by false pretenses, preventing competitors from leasing land while not compensating the property owners.
Chesapeake allegedly directed its agents to lease land in northern Michigan, indicating the landowners’ mortgages would not be an obstacle. When competition for leasehold ceased, the company canceled nearly all of its leases, using mortgages as the purported basis, prosecutors said.
“I will defend and protect the taxpayers of Michigan in the face of fraudulent business practices,” Schuette said. “Scamming hardworking Michigan citizens is not how we do business in this state.”
Prosecutors charged Chesapeake with one count of conducting criminal enterprises and eight counts of false pretenses. The charges are punishable by thousands of dollars in fines.
Company representatives will be arraigned on the new charges June 25 in Cheboygan County’s 89th District Court.
Chesapeake already is facing antitrust charges in Michigan for allegedly conspiring with fellow natural gas producer Encana Corp. to limit prices in a 2010 land auction.
The company has denied those charges, indicating it had considered a joint venture with Encana.
The Canadian company reached a settlement with prosecutors last month before a preliminary hearing in the case.
Chesapeake has asked a judge to dismiss the antitrust charges, but the judge has not ruled on whether there is sufficient evidence for a trial in the case.