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
Jacobs, William Vigdor, Neil Imus,
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
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.