Home » Financial » Chesapeake Hired Lawyer With Stealth Record in CEO Probes

Chesapeake Hired Lawyer With Stealth Record in CEO Probes

The lawyer Chesapeake Energy Corp.’s (CHK)
audit committee hired to investigate possible conflicts of
interest in its chief executive’s loans has a record of managing
probes with minimum publicity about himself or his client.

Craig Weinstock, a Houston-based attorney with Locke Lord
LLP, has handled more than a dozen internal investigations of
alleged corporate malfeasance since 2002, including one for a
company run by Chesapeake’s lead director Merrill A. “Pete” Miller Jr., a member of the audit committee, a person familiar
with Weinstock’s work said.

The U.S. Securities and Exchange Commission began an
investigation after the company disclosed more than $800 million
in loans made to its chief executive, with some involving
company financiers. Weinstock tends to resolve such matters with
little fanfare, keeping his own role a secret in most cases,
according to a rival Houston lawyer.

“He said his reports are submitted to the government or
the board, and no one hears of it,” said Lance Lubel, a
Houston-based plaintiffs’ lawyer who has litigated cases against
Weinstock.

Weinstock, 54, has handled internal reviews for other oil
and gas companies, such as Nabors Industries (NBR) Ltd., according to
Lubel. The Vanderbilt University law graduate represented Nabors
in a 2006-2007 probe of allegations that the oil-drilling
company may have backdated stock options for executives,
according to the person familiar with Weinstock’s work.

The SEC announced in May 2007 that it had ended its review
of Nabors’s stock-option practices without penalizing the
company, according to a regulatory filing. Laura Doerre, a
spokeswoman for the Hamilton, Bermuda-based energy company,
declined to comment on Weinstock’s work.

‘Real Quiet’

Lubel said Weinstock, a native of Queens, New York, is
known in Houston legal circles as a workaholic who has carved
out a niche handling internal reviews for oil and gas companies.

“He’s a big guy, but real quiet,” Lubel said. “He does
not have the reputation as a gunslinger.”

“He strikes me as a guy who does this kind of work in a
quietly competent manner,” Steven Roberts, a Houston-based
lawyer who represents energy companies, such as Transocean Ltd.,
and has litigated against Weinstock in the past. “He’s not
flashy and doesn’t seek out the spotlight.”

Chesapeake announced in May that the audit committee had
hired outside counsel to probe loans made to Chief Executive
Officer Aubrey McClendon, the natural-gas company’s founder.
Reuters had reported that he’d borrowed as much as $1.1 billion
over several years against his personal stakes in company wells,
including from a firm that does business with Chesapeake.
McClendon said in April that as of Dec. 31 he had $846 million
in outstanding loans tied to the company’s well-participation
program.

Shares Dropped

Oklahoma City-based Chesapeake’s shares have dropped about
16 percent this year amid falling gas prices and growing
investor mistrust of directors’ lax oversight of McClendon. The
energy explorer is facing an estimated $22 billion cash-flow
shortfall by the end of 2013 after natural-gas prices touched a
decade low earlier this year. Chesapeake agreed to sell pipeline
assets for more than $4 billion this month and is in talks to
raise billions more by divesting oil and gas prospects.

Chesapeake officials have said McClendon will step down as
chairman once a replacement is chosen. Earlier this month, the
company agreed to replace almost half its board under pressure
from its two largest shareholders, billionaire Carl Icahn and
Southeastern Asset Management Inc.

Miller, the chief executive of Houston-based National
Oilwell Varco (NOV) Inc., has remained as lead outside director on
Chesapeake’s board. He recommended that his colleagues hire
Weinstock to handle the McClendon loan probe, the person said.

Weinstock’s Mission

The board asked Weinstock to review McClendon’s dealings
with lenders with which the natural-gas company does business,
including EIG Global Energy Partners LLC, a private-equity firm
that arranged a $1 billion credit line for the CEO.

In addition to EIG, McClendon has also gotten personal
financing over the years, either as an individual or through one
of the companies he controls, from Goldman Sachs (GS) Group Inc.,
Wells Fargo Co. (WFC), Bank of America Corp. (BAC), Wachovia Corp. and
Mitsubishi UFJ Financial Group Inc.’s Union Bank, all of which
have provided financing to Chesapeake, according to federal
court and county property records and securities filings.

Investors have sued Chesapeake, questioning whether
McClendon’s loans, obtained to cover his costs in the well
program, created conflicts of interest and harmed the company.

Miller recommended hiring Weinstock because the lawyer has
been handling a federal probe into allegations of sanctions
violations involving Miller’s National Oilwell Varco, a drilling
equipment maker, and its Ameron International Corp. unit, the
person said. The probe’s focus is dealings involving Iran, the
person said.

Subpoena

National Oilwell Varco said in a February regulatory filing
that they had received grand jury subpoenas and inquiries from
federal agencies, including the U.S. Justice Department and the
U.S. Treasury’s Office of Foreign Assets Control about their
“compliance with export trade laws and regulations.”

The company said it had “conducted our own review of this
matter” without naming Weinstock or his firm or saying that the
matter involved its Iranian operations. It said it was
“negotiating a potential resolution with the agencies.”

National Oilwell Varco acquired Pasadena, California-based
Ameron last year in a $772 million transaction. Weinstock’s law
firm represented the drilling-supply company in the deal,
according to the American Lawyer Magazine, a trade publication.

Iran Probe

Ameron officials said in a 2011 SEC filing that Treasury
Department lawyers had asked the pipe maker in 2008 for
information “regarding transactions involving Iran.” Ameron
also said it “conducted an internal inquiry and continues to
cooperate fully” with federal officials probing its Iranian
dealings. Weinstock wasn’t identified in the filing as leading
that review.

Miller, a graduate of the U.S. Military Academy at West
Point who became National Oilwell’s top executive in May 2001,
didn’t return calls for comment on Weinstock’s work for National
Oilwell and Ameron or Chesapeake’s hiring of Weinstock.

Jim Gipson, a Chesapeake spokesman, declined June 14 to
discuss Weinstock’s hiring or the lawyer’s work for the natural-
gas driller.

Weinstock has an independent streak that may surprise
clients, said David Warden, a Houston-based patent litigator who
has served on a three-person arbitration board with the Locke
Lord partner in 2010. Warden said he couldn’t discuss the
specifics of the private arbitration, but it focused on a
dispute “involving a large oil and gas company.”

Arbitration Panel

Two members of the panel were selected by the parties to
the arbitration, and those two designees tapped the third
member, Warden said. Weinstock was named by one of the
companies.

“In some instances, lawyers feel they have to act as
advocates for their clients even though they are supposed to be
arbiters of a dispute,” Warden said.

“Craig showed absolutely no favoritism to either side,”
Warden said. The panel came up with a 70-page decision that
didn’t please either company that submitted their claims to
arbitration, he said.

The patent litigator said Weinstock will impartially
investigate McClendon’s dealings with lenders and give directors
a comprehensive review of whether his well-participation loans
created any conflicts for the company or its top executive.

“I think he’ll take the approach that he’ll investigate
and let the chips fall where they may,” Warden said. “That’s
the kind of guy he is.”

One of the investors’ lawsuits is Deborah G. Mallow IRA
SEP Investment Plan v. McClendon, 12-cv-436, U.S. District
Court, Western District of Oklahoma (Oklahoma City).

To contact the reporters on this story:
Jef Feeley in Wilmington at
jfeeley@bloomberg.net;
Zachary R. Mider in New York at
zmider1@bloomberg.net;
Laurel Brubaker Calkins in Houston at
laurel@calkins.us.com ;

To contact the editor responsible for this story:
Michael Hytha at mhytha@bloomberg.net

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