According to the complaint filed April 26, 2012, Chesapeake Energy Corporation ("Chesapeake") is a leading natural gas producer, and has very aggressively promoted the use of fracking to extract previously unrecoverable reserves.
The Company's Chief Executive Officer currently owns roughly 1.35 million shares of Chesapeake stock (presently worth approximately $24 million), and also holds a share of Chesapeake's oil and gas wells pursuant to the Company's Founders Well Participation Program (the "FWPP"). Under that program, the CEO has the right to purchase a 2.5% interest in each well drilled by Chesapeake, must pay a proportionate share of related costs, and is entitled to a proportionate share of revenues generated therefrom.
Unbeknownst to Class members, starting in 2009, the CEO leveraged all of his FWPP interests in order to pay up front development costs. He not only secured loans on his ownership interests in the wells, but also sold off revenue "participation rights" in the wells. The CEO also secured a personal loan in excess of $500 million from EIG Global Energy Partners ("EIG"), a hedge fund that engaged in financing transactions with Chesapeake.
As a result, by year end 2011, the CEO had amassed personal debt on Chesapeake related wells and parties exceeding $1 billion. The size of the debt and the CEO's leveraging of all his FWPP related interests represented material undisclosed risks to Chesapeake investors. Its CEO was excessively leveraged, and his ability to satisfy those debts was dependent upon the Company's successful performance of the mortgaged wells.
As gas prices tumbled through 2011, those undisclosed risks exponentially increased as both Chesapeake and its CEO faced significant challenges to pay off debts and finance ongoing operations.
It was not until April 18, 2012 that these previously undisclosed details were widely disclosed by investigative reports published by Reuters and the Wall Street Journal. Analysts reacted negatively.
Chesapeake shares plummeted $1.06—or 5.5%—representing over $500 million in market value losses. On April 26, 2012, Chesapeake abruptly terminated the FWPP program, while Board members disclaimed any knowledge of the size of the CEO's indebtedness. Chesapeake shares are now trading at less than $18.00 per share.
On July 20, 2012, the Court issued an Order appointing lead Plaintiff and approving the selection of lead Counsel.
On October 19, 2012, the Plaintiffs filed their Consolidated Class Action Complaint.
On April 10, 2013, the Court issued an Order granting the Defendants' Motion to dismiss the Consolidated Class Action Complaint. A Judgment was issued 6 days later. On May 7, the Lead Plaintiff filed Notice appealing the above Order of dismissal. The 10th Circuit affirmed the decision of the District court on July 8, 2014.
