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Aubrey McClendon, Former CEO of Chesapeake Energy, Indicted for Federal Charges of Bid Rigging; Dies the Following Day

V&E's Antitrust Update E-communication, March 7, 2016

By Craig Seebald, Matthew Jacobs, William Vigdor, Neil Imus, and Colin McDonell

On March 1, 2016, the Antitrust Division of the U.S. Department of Justice indicted former Chesapeake Energy CEO Aubrey McClendon on charges of conspiracy to rig bids in violation of the Sherman Act, 15 U.S.C. § 1. The next day, after releasing a statement that the charges were “wrong and unprecedented,” Mr. McClendon died in a car crash. On Thursday, the Justice Department asked the court to dismiss the charges.

The indictment concerns the market for oil and natural gas leaseholds and properties producing oil or natural gas in northwest Oklahoma. According to the indictment, during his tenure as CEO, Mr. McClendon agreed with unnamed co-conspirators at “Company B” to suppress prices for these interests by eliminating competition between companies that would have otherwise been competitors. The indictment does not identify “Company B.”

Specifically, the indictment alleges that Mr. McClendon agreed that one company would either refrain from submitting bids or withdraw previously submitted bids for leaseholds and producing properties. In exchange, the other company would allegedly receive a share of the leaseholds and producing properties purchased by its competitor.

In a statement released before his death on March 2, Mr. McClendon vowed to fight the charges, saying that he had “been singled out as the only person in the oil and gas industry in over 110 years since the Sherman Act became law to have been accused of this crime in relation to joint bidding on leasehold.”

The indictment’s reference to other “co-conspirators” could signal that other indictments could be forthcoming. Indeed, the Justice Department’s press releases references that there is an “ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the oil and natural gas industry.”

The indictment prompted the filing of a civil lawsuit under the Sherman Act against Chesapeake Energy in U.S. District Court for the Western District of Oklahoma on March 3.

What This Means for You

While the indictment contains few details, there are several important lessons to be learned from it. First, it reminds us that the Obama Administration continues to aggressively pursue antitrust investigations, especially criminal investigations in high profile industries, such as energy. Just last year, the Justice Department collected over $3.6 billion in criminal fines and penalties in antitrust cases (a record for any fiscal year) and indicted 20 companies and 66 individuals. Importantly, after years of focusing on international cartels, this indictment reflects that the Justice Department is showing renewed interest in domestic cartel investigations.

Second, the indictment also shows that the Antitrust Division and the Justice Department more broadly are increasing their focus on individual accountability, targeting senior executives whom the Justice Department believes to be culpable.

Third and most importantly, this indictment, by itself, does not change the Justice Department’s views of legitimate joint ventures in the energy industry. The Justice Department’s indictment characterizes the underlying conduct as straight-forward price fixing. It alleges that Mr. McClendon was agreeing to fix prices with a horizontal competitor in northwestern Oklahoma to hurt landowners. It does not make any reference that the bidding was through a joint venture and it does not try to develop any new theories of liability.

Nevertheless, this indictment is an example of the fine line between lawful joint ventures and coordinated activity that the Antitrust Division might perceive as bid rigging, an issue that has arisen in unrelated markets. In Northern California and other parts of the country, for example, the Antitrust Division has indicted real estate investors for allegedly rigging bids at foreclosure auctions, and over fifty defendants have pleaded guilty. Other investors have fought or are fighting the charges, arguing that they purchased properties with partners under legitimate joint venture agreements.

We continue to believe that arrangements to jointly own, explore and develop acreage in the energy industry by co-investing, sharing risk or jointly owning assets will be subject to the rule of reason, not per se criminal liability. But if industry members set up an arrangement in which (a) they have not integrated their operations or pooled their resources, and (b) the purpose of the arrangement is to harm landowners, then this indictment reminds us that such conduct is very risky.

For more information, please contact Vinson & Elkins lawyers Craig Seebald, Matthew Jacobs, or Neil Imus. Visit our website to learn more about V&E's Antitrust Investigations practice, or e-mail one of the practice contacts.

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.