The financial world has been engulfed with news and market chatter about the CEO of Chesapeake (CHK) -- Aubrey McClendon -- for getting roughly a billion in loans in order to invest in the wells that Chesapeake owns and manages.
This isn't necessarily too bad -- it just means he's got some skin in the game. The tricky part that caused stock prices to drop substantially is the fact that his collatoral on the loans is his personal stake in the wells. In other words, his collateral is his stake in the wells -- and the loan is being used to buy into the wells.
One of the companies where he got the loan issued a letter to their own investors, saying that everyone was making something out of nothing.
The SEC isn't as certain, and is probing the situation.
The IRS is apparently looking at the situation as well, according to documents filed with the SEC.
There's a pretty good chance that everyone has overreacted to Chesapeake Energy. They have a solid portfolio of acres with drilling spots, and their CEO has a heck of a lot of incentive to make sure those wells are profitable over the long haul.
But, unfortunately, McClendon is a cowboy who's being investigated by the SEC, the IRS, and sued for unnecessarily brash financial moves. In 2008, McClendon stayed true to form, dumping stocks and hurting shareholders -- only to get sued himself later.
I think Chesapeake is a great company and with a more boring CEO, I'd probably have some more exposure. I was an investor in 2010 for some successful short-term speculation, but only for a few months.
I don't plan on investing anymore anytime in the near future unless McClendon is replaced. He's too much of a cowboy, he's too self-obsessed, and it's just too much for me to handle.
And there are far more attractive companies with great management out there where the goal is to work feverishly for investors, not in spite of them, like I talked about in my Ford (F) stock price article.
In the end, if McClendon is ever replaced, we can revisit the company, but for now, it's too close to a crap shoot. If you were hanging on during the recent dip, the price seems to have fully recovered, giving the option of a graceful exit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
