Chesapeake Energy Corp. CEO Aubrey McClendon may be learning that lesson, as well.
According to a Reuters investigative report, Chesapeake has been setting up shell companies businesses with no real operations and which exist only on paper to secure leases from landowners in Michigan. The tactic keeps competitors from sniffing around on potentially promising lands, but Reuters contends the shell company also enabled Chesapeake to turn around and void the leases, allegedly reneging on big bonus agreements.
Reuters reported last week that Chesapeake set up the shell company, Northern Michigan Exploration LLC, to conceal its involvement in obtaining and later terminating more than 800 leases mostly belonging to elderly farmers.
Setting up shells is not illegal. In fact, the news story noted, it is common among businesses, and McClendon himself was listed as CEO of Northern.
But the rub is that Chesapeake, responding in a lawsuit brought by 100 landowners, claims that it was Northern, not Chesapeake, that canceled the leases. When landowner attorneys asked whether Northern was a wholly owned subsidiary of Chesapeake, the energy giant's lawyers said no.
According to Reuters, Northern was just one part of a Matryoshka doll. Northern was incorporated by another Chesapeake-created shell company, LA Land Acquisition Corp., a Delaware entity with no discernible assets. After Northern was established by LA Land, Northern hired a local land-lease company that, in turn, hired another local land-lease firm.
Got all that? The storyline of TV's Lost was less confusing.
Documents obtained by Reuters indicate the land-lease companies agreed to negotiate with landowners without disclosing Chesapeakes role in the transactions.
When an exploratory well came up dry, however, landowners allege Chesapeake found myriad reasons to void the vast majority of the leases.
Among the rejected leases was one involving a 93-year-old widow. Reportedly, she was told her $97,000 bonus wouldn't be paid because her late husband hadn't signed the lease, and that the family trust, which owned the land, listed the names of her and her husband.
The Reuters report notes that a landman had drafted the lease a month after the death of the woman's husband.