Last week, shale giant Chesapeake Energy Corporation filed its Form 8-K with the SEC, revealing that it had received additional Department of Justice subpoenas “seeking information on [Chesapeake’s accounting methodology for the acquisition and classification of oil and gas properties and related matters.”

This is just the latest is a string of inquiries from the DOJ and other federal and state entities, following subpoenas for information on: (1) Chesapeake’s leasing practices; and (2) Chesapeake’s royalty payment practices. The first two inquiries were decidedly antitrust in nature, but this recent inquiry may point to more of a securities issue.

Where the DOJ Goes, Lawsuits Typically Follow

Typically, federal inquiries shine a light on injuries and spur state or plaintiffs’ class action lawsuits. This happened with Chesapeake’s earlier DOJ subpoenas and federal criminal investigations, which were followed by a slew of lawsuits.

KRCL attorney David Bond’s article, “Federal Class Action Serves as Warning to the Oil and Gas Industry,” discussed how the late Aubrey McClendon’s indictment of federal antitrust charges gave rise to a class action from royalty owners. And, after news of the DOJ subpoenas on leasing and royalty practices in 2014 (not to mention individual state inquiries), Chesapeake began to face antitrust and royalty fraud lawsuits around the country.

Famously, in May 2016, Chesapeake settled about 400 lawsuits – covering 13,000 Barnett Shale plaintiffs’ claims – covering $52.5 million. Other lawsuits include the well-publicized state action by the Commonwealth of Pennsylvania, which continues today.

But the Latest DOJ Subpoena Might Be a Different Animal Altogether

While the SEC filing rules only required Chesapeake to make a brief, general statement in its 8-K about its latest DOJ entanglement – we may still be able to speculate on the nature of the subpoena, and the consequences.

Chesapeake’s previous filing disclosures related to subpoenas on leasing practices and royalty payments, and it was not difficult to connect the dots between those disclosures and antitrust and fraud causes of action. But this recent disclosure states the DOJ wants information on Chesapeake’s “accounting methodology for the acquisition and classification of oil and gas properties.”

That sounds more like a securities issue than a potential antitrust violation.

But, if this was related to an SEC enforcement action, the subpoena would predictably have come from the SEC, not the DOJ. That is not what the 8-K filing says. It says Chesapeake received a “DOJ subpoena” for its accounting records.

This might hint at a criminal investigation. The SEC does not have the authority to institute criminal prosecutions – but the DOJ, of course, does. While the operation would probably be in tandem with the SEC, this would explain how a securities-related subpoena would originate from the DOJ, without any prior SEC action.