This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Corporate Malfeasance Pokes the Eye of Libertarians

NEW YORK ( TheStreet) -- Chesapeake Energy Corp. (CHK - Get Report) broke into the headlines over the weekend with more of the kind of great news that puts that company in a category all its own -- almost all its own -- amid the landscape of Corporate America.

A Reuters probe found that under the brilliant leadership of its CEO, Aubrey McClendon, Chesapeake plotted with its top competitor, Canada's Encana Corp., to avoid bidding against each other, thereby suppressing the prices of land they wished to lease.

Even without this alleged bid-rigging scheme -- reminiscent of the kind of games the Mafia used to play in the New York construction industry -- Chesapeake Energy would be one hell of a company. It is one of the leading practitioners of the earth-defiling horror known as hydrofracking, in which toxic chemicals are injected into the bedrock, from whence they have been known to poison groundwater and play havoc with the environment.

The entire fracking business has been likened to a giant Ponzi scheme, so it's far from clear if the rural vastness of the Marcellus Shale region, the current target of the frackers' greed, is the only one to be ravished by the frackers. Investors in fracking companies like Chesapeake may well join the long list of victims. As a kind of icing on the cake, McClendon, when not pouring money into far-right causes, was taking $1.3 billion in loans from a company that did business with Chesapeake, and stepped down as chairman of the company (though not as CEO) after that was revealed.

It's not clear yet if President Obama's Justice Department, which has been timid in its prosecution of corporate crime, will go after that sweetheart or anyone else at Chesapeake. But to free-market purists the retribution has already set in. In the wake of the Reuters article on the bidding scheme, which ran Monday morning, Chesapeake Energy shares immediately plummeted 8.5%, and continued their decline on Tuesday.

The market, in other words, reacted as the market is supposed to do in such situations, and cut into the overall market capitalization of Chesapeake by a little over $1 billion. To which one can only add, as counterpoint, a hearty "big deal."

The recent travails of Chesapeake Energy and an unrelated but, in its own way, equally hideous company, Green Mountain Coffee Roasters (GMCR), are the best examples I can find of how the market is simply not equipped to deal with corporate malfeasance, libertarian orthodoxy notwithstanding.

Green Mountain Coffee Roasters and Chesapeake don't seem to have much in common. But each has exhibited a collective character flaw that no billion-dollar market cap penalties can even begin to correct. They are the kind of companies for which regulation -- and perhaps law enforcement -- is the only answer.

Green Mountain has a loyal shareholder base, so as to put it squarely in the category of a cult stock. And that's where the problem lies. Its shareholders are so loyal that they are like teenagers in their first fling at puppy love, liable to be badly hurt. Over the past year, the company's stock has declined from a high of about 110 to its current price of about 20, a market cap decline of a hair under $14 billion.

This is a coffee company, remember, not a fracker. It's not engaged in bid-rigging. It isn't poisoning wells. I even know people who like its coffee, though I personally can't stand the stuff. What makes Green Mountain such a basket case is not just that the company issued a dismal prediction of product demand, which caused its stock to plummet 40% on one day last spring. That's not "disappointment" -- it's a massacre.

Behind the share price massacre, critics of the company contend, are persistent red flags of fraud. Hedge fund manager David Einhorn has been all over Green Mountain for months. And long before he went on the case, there was blogger Sam Antar, who masterminded the Crazy Eddie scandal and has since made a career of rooting out corporate crime. He has been breathing down Green Mountain's neck on a number of issues, and is especially troubled by the company's inventory turnover numbers. Scheming on inventories was an Antar family specialty at Crazy Eddie, and what he saw in the inventories reminded him of the bad old days. The numbers, he feels, just don't make sense.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CHK $5.80 -11.99%
GMCR $91.67 -0.30%
AAPL $95.18 1.64%
FB $117.43 -0.96%
GOOG $692.36 -0.84%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs