WASHINGTON, June 5 (Reuters) - The embattled chief executive
of Chesapeake Energy Corp. has hired a top defense lawyer to
represent him in a securities regulatory inquiry into $1.3
billion in personal loans, three people familiar with the
CEO Aubrey McClendon has retained Marvin Pickholz, a partner
with Duane Morris and a former assistant director of enforcement
with the Securities and Exchange Commission. He is counseling
McClendon in connection with the SEC inquiry into loans he
obtained from an investment firm doing business with the natural
The SEC is looking into whether the loans posed a conflict
of interest or should have been disclosed to shareholders.
The loans from investment funds managed by EIG Global Energy
Partners enabled McClendon to participate in a special perk
which awarded him as much as a 2.5 percent interest in every
well drilled by Oklahoma City-based Chesapeake each year.
McClendon used the well stakes as collateral for the loans.
The SEC launched its inquiry soon after April 18, when
Reuters reported on the loans to McClendon, who co-founded
Chesapeake more than two decades ago.
Pickholz, an aggressive and tough-talking attorney,
represented a key prosecution witness in the trial of homemaking
doyenne Martha Stewart on obstruction of justice charges
stemming from an insider trading investigation. He is also a
frequent legal commentator on television news programs.
Pickholz, who also wrote a book on securities crimes
published by Thomson Reuters' WestLaw division, declined to
comment for this article.
"Marvin Pickholz certainly is a major, and a well-known
litigator who has been on the scene for a number of decades, and
his reputation is he's a very tough, aggressive, in-your-face
type of litigator," said Bill Singer, a former Duane Morris
partner who is now a partner at Herskovits PLLC.
"He's somebody who is not likely to be intimidated."
McClendon appears to be gearing up for a legal fight at a
time when his control of Chesapeake has suffered a series of
setbacks. Following the news about the loans from EIG, McClendon
and Chesapeake's board have come under severe pressure from
shareholders to overhaul company management and strategy.
In mid-May, the board announced it will replace McClendon as
chairman and appoint an independent lead director. It voted to
end the so-called Founder Well Participation Program, through
which he receives his well stakes, in June 2014.
The board also launched an investigation of all financial
transactions between McClendon and firms that have done business
On Monday, the company bowed to pressure from billionaire
activist investor Carl Icahn and O. Mason Hawkins of
Southeastern Asset Management, giving them authority to name
four independent directors to the company's nine-member board.
The company has not said much about the SEC inquiry since
confirming its existence on May 3. The inquiry is being led by
the SEC's regional office in Fort Worth, Texas.
Working with Pickholz in representing McClendon is Matthew
Taylor, head of Duane Morris' trial practice group, said one
person familiar with the matter.
Taylor declined to comment through a Duane Morris spokesman.
A spokesman for McClendon declined to comment.
Pickholz has handled various high-profile matters over the
years. He has served as counsel for Jack Atchison, the audit
partner in the Lincoln Savings and Loan Association scandal in
the early 1990s.
He also represented Douglas Faneuil, an assistant to Martha
Stewart's stockbroker who acted as the star witness for the
prosecution during her obstruction of justice case. Stewart, who
was never charged herself with insider trading, was convicted in
2004 of lying to investigators about a stock trade and was
sentenced to five months in prison.
Taylor represents a defendant in the SEC's case against the
Reserve Primary Fund, which "broke the buck" during the
financial crisis when its net asset value fell below $1 per
Meanwhile, Chesapeake has separately hired Bracewell &
Guiliani and Patrick Craine, a partner in the firm's Dallas
office, to address the SEC inquiry, several people familiar with
the matter also said.
A spokesman for Chesapeake declined to comment. Bracewell &
Guiliani did not return repeated requests for comment.
Craine used to work in the SEC's Fort Worth office.
Bracewell & Guiliani has previously worked for Chesapeake,
including in 2008 when the SEC's corporation finance division
began asking questions about the disclosure of benefits received
by McClendon through the well perk program that are now at the
center of the SEC probe.
Some investors and corporate governance experts have
questioned whether it is appropriate for an investment firm that
does business with Chesapeake to also provide financing to its
chief executive. When Chesapeake's board announced it would end
the well-drilling investment in 2014, it said it had not
approved or reviewed the loans from EIG.
In an April 23 letter to investors in two of its
energy-focused investment funds, EIG Chief Executive Officer R.
Blair Thomas said it is "simply untrue" that there was any
conflict of interest in its loans to McClendon and dealings with
All told, McClendon has taken out loans worth $1.55 billion
since 2009 from EIG and other lenders to fund his participation
in the well drilling program. That perk enables him to receive a
stake of up to 2.5 percent in all the wells Chesapeake drills in
return for shouldering the same percentage of the wells' costs.
Reuters has also reported on several other potential
conflicts of interest involving McClendon and his duties as
Chesapeake chief executive. Those potential conflicts include
borrowing money from a former board member and running a $200
million hedge fund out of his office that invested in the same
commodities the company produces.
(Reporting by Sarah N. Lynch and Aruna Viswanatha; additional
reporting by Brian Grow)
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