UPDATE 2-Michigan AG charges Chesapeake with racketeering and fraud

Thu Jun 5, 2014 5:08pm EDT
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(Adds background, detail on disputed leases, attorney comment)

By Brian Grow and Joshua Schneyer

ATLANTA, June 5 (Reuters) - The state of Michigan filed felony racketeering and fraud claims against Chesapeake Energy Corp on Thursday, in the latest legal fallout from Chesapeake's ambitious attempt to acquire drilling rights amid the U.S. fracking boom.

The charges, filed in Michigan state court in Cheboygan, allege the second-largest natural gas producer in the United States cancelled hundreds of land leases on false pretenses after it sought to lock up oil and gas rights.

State Attorney General Bill Schuette said Chesapeake, through its leasing agents, harmed private landowners in northern Michigan by falsely claiming that mortgages on their properties were a legitimate basis for the lease cancellations. Landowners were previously told the mortgages were not a problem, the state alleged.

"I will defend and protect the taxpayers of Michigan in the face of fraudulent business practices," Schuette said in a press release.

Oklahoma City-based Chesapeake said it will fight the charges. "We believe this action has no merit and we will vigorously contest these baseless allegations," said Gordon Pennoyer, a Chesapeake spokesman. The company has said it spent approximately $400 million acquiring leases in Michigan.

The felony complaint charges Chesapeake with one count of "conducting a criminal enterprise," punishable by up to a $100,000 fine, and eight counts of "false pretenses," punishable by a $10,000 fine each - or three times the value of money or property involved, whichever is greater.

Chesapeake is scheduled to be arraigned on the charges on June 25.   Continued...