The rules never apply to the 1%, of course. And after all, they keep telling us no one’s rigging energy prices, nope, not here, must be your imagination. Ryan Chittum at CJR reports:
Reuters unloads anotherÂ outstanding scoopÂ on the sketchy doings of Chesapeake Energy Aubrey McClendon, reporting that the CEO ran a hedge fund inside Chesapeake from 2004 to 2008 that bet on natural gas.
While Reuters notes up high that insider trading isnât illegal in commodities, McClendonâs moonlighting as a fund manager was never disclosed to investors and perhaps not even to the companyâs overly friendly board of directors.
In Chesapeakeâs case, McClendon would have been aware of major decisions that could affect natural gas prices before that information became public. Accounting for 5 percent of U.S. natural gas production, Chesapeake holds tremendous sway over markets. On January 23, the company announced sharp output curbs in response to low prices. In response, U.S. natural gas futures surged by 8 percent the same day.
âIf the company needs to make an operating decision which might move the market against the CEOâs positions, thereâs a risk that will influence the decision-making at the top of the company,â said Jeff Harris, former chief economist at the marketâs U.S. regulator, the Commodity Futures Trading Commission, and now professor of finance at Syracuse University.
Another potential problem is known as âfront-running.â Thatâs when a trader buys or sells a commodity in advance of a clientâs or his companyâs orders. In theory, McClendonâs first-hand knowledge of Chesapeakeâs own plans to trade would enable him to profit by trading ahead of Chesapeake – a move that could raise costs for the company.
Iâd imagine the CFTC is going to want to take a very close look at this latest McClendon mess. And youâd have to guess Chesapeake shareholders would like to have known that the guy they were paying $112 million to run their company in 2008 was also âengaged in ânear dailyâ communications and âexhaustiveâ calls to help direct the fundâs trading.â
This story follows closely on the heels of another one Reuters helped turn into a major headache.
AfterÂ The Pittsburgh Post-GazetteÂ very good scoopÂ in late March that McClendon was borrowing against his share of Chesapeakeâs wells, ReutersÂ expandedÂ the story in a major way, reporting that the CEO had borrowed more than a billion dollars against the assets from lenders that included a private-equity fund that was purchasing Chesapeake assets. Chesapeakeâs top lawyer said that the companyâs board was âfully awareâ of the deals, something the directors themselves later disputed (check out the companyâsÂ snippy PR responseÂ too.)