There are plenty of legally sound business practices that are morally questionable. One example is creating a shell company– a company that only exists on paper and doesn’t actually hold any assets. A corporation could create a shell company for several reasons (e.g. dodge taxes*, hide risks from share holders, protect reputation, etc). In the case of a giant energy company, like Chesapeake, a good reason for creating a shell company is to grab land without drawing attention from competitors. The tactic could also allow them to lease land for cheaper.
Fraud, however, is not legal; and this has 115 Michigan land owners suing Chesapeake Energy Corporation. More than 800 frustrated land owners signed a lease, which was later rejected, and never received a dime. A Reuters investigation went into detail about the affair. In all, 97% of the leases signed with Chesapeake’s shell company, Northern Michigan Exploration, were rejected. Actually, Northern Michigan Exploration is a shell company of a shell company of Chesapeake’s, which makes the matter even more complicated.
According to the article, lawyers for the land owners contend that Chesapeake voided the leases after a Michigan well came up dry, suggesting that the company may have never intended to honor their agreements. Chesapeake denies that it conducted business in Michigan, even though Aubrey McClendon was CEO of Northern Michigan Exploration.
Read the full article “Energy giant hid behind shells in ‘land grab’”…
*If you were wondering, Chesapeake Energy “had a 3-year effective tax rate of -2.1 percent between 2008 and 2010,” meaning they were paid a $173 million rebate on their $8.3 billion profit according to the Institute for Taxation and Economic Policy (ITEP) and Citizens for Tax Justice. The rebate is at least partially due to tax breaks on infrastructure and equipment investments– investments they may have made, anyway, without the tax break.
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It is really unfortunate for a lot of honest people on all sides of this. On one side you have the landowners that lost much needed income and on the other is Chesapeake employs thousands of people that depend on these jobs. When something like this happens it is a black eye for the industry. On top of an already shakey economy it causes a feeling of instability throughout the industry. What is more unfortunate is that it was a bad choice made by few that hurt so many based on greed and nothing more. Now to some it all up the Justice Dept. is looking in on it and could lead to possible indictment. Even if there arent charges it would seem somewhat dishonest at best.