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Chesapeake Energy Battles Racketeering, Fraud Charges In Michigan

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CHEBOYGAN, Michigan -

Chesapeake Energy is back in a Michigan courtroom, this time fighting racketeering and fraud charges.

A probable cause hearing got underway today, in which the Michigan Attorney General's office is trying to convince a district court judge that there is sufficient evidence to try Oklahoma City-based Chesapeake for allegedly victimizing private landowners back in 2010.

Last month, in the same courthouse, Chesapeake faced charges, also brought by Michigan Attorney General Bill Schuette, of violating the state's antitrust statutes.

All of the charges stem from a short-lived leasing boom in 2010, when Chesapeake and other oil and gas companies were competing for leases in the Collingwood Shale in northern Michigan.

A Reuters story in 2012 revealed, in the run-up to a Michigan land auction in October 2010, executives with Chesapeake and Encana Oil exchanged numerous emails, in which they discussed splitting up the land to be auctioned, so as to avoid "bidding each other up," as then-Chesapeake CEO Aubrey McClendon put it.

The story spurred both a federal investigation into possible antitrust violations, as well as, an investigation by Michigan authorities. Earlier this year, U.S. prosecutors cleared both Chesapeake and Encana of any federal wrong-doing.

Michigan prosecutors, however, continued with their antitrust case. In July, District Judge Maria Barton dismissed two of the three charges filed by the Attorney General, but did bind Chesapeake over for trial on a third charge: bid-rigging.

No trial date has been set in that case, although formal arraignment is set for tomorrow.

In a separate action in June, Attorney General Schuette charged Chesapeake with one count of conducting criminal enterprises (racketeering), and eight counts of false pretenses (fraud). Schuette later amended the complaint, adding 12 more counts of fraud.

Michigan prosecutors allege Chesapeake defrauded private landowners by inducing them to sign lease agreements at the height of the 2010 land grab, and then canceling the contracts, without good reason, once competition for the land had dwindled.

"I will defend and protect the taxpayers of Michigan in the face of fraudulent business practices," Attorney General Schuette said, in a statement, when he first filed the fraud charges. "Scamming hardworking Michigan citizens is not how we do business in this state."

Chesapeake spokesman Gordon Pennoyer released this statement today: "The Attorney General is attempting to criminalize a basic contract dispute and we will vigorously contest these meritless allegations."

The probable cause hearing is expected to continue through August 27th.

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