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In Latest Sign of Trouble, Chesapeake Energy Hires Lehman Spin Doctor

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In the latest sign that massive natural gas fracker Chesapeake Energy is in deep trouble, the company has retained George Sard, the CEO of Sard Verbinnen. Sard was described as a "spinmeister of the apocalypse" by Portfolio magazine in April 2009, because he has worked as a PR consultant for so many high-profile clients in moments of utter, humiliating public collapse.

Chesapeake is in distinguished company. Sard's clients have included the Madoff brothers (Ponzi scheme), Eliot Spitzer (prostitution), Martha Stewart (insider trading), former Lehman Brothers CEO Dick Fuld (Ponzi scheme), and AIG (Ponzi scheme). His firm was also on the scene during the Enron collapse -- JPMorgan hired him to beat back accusations that the bank was complicit in the Enron fraud (it eventually paid $135 million to settle SEC charges).

The first reports of Sard's hiring came today, amid news that Chesapeake's board had decided to replace CEO Aubrey McClendon as chairman (he will continue as CEO). The company made the move following two weeks of controversy first sparked by a Reuters report that the CEO had borrowed $1.1 billion in secret, personal loans in order to finance his investments in the companies' wells.

The reports raised serious conflict of interest questions and attracted new scrutiny from Chesapeake shareholders, the SEC and the IRS. The company's board has taken a series of steps to address the controversy, including ending the "Founders Well Participation Program" that gave McClendon stakes in Chesapeake wells. Its biggest shareholder, reclusive value investor O. Mason Hawkins applauded today's move. But Sard's hiring suggests that the board doesn't think the problems plaguing the company will go away any time soon.

Will Chesapeake emerge from the crisis in one piece, or will it go the way of Lehman or Enron? There appear to be fundamental problems with Chesapeake's business model that go beyond CEO shenanigans; a recent Rolling Stone article suggested that the company is something of a Ponzi scheme. In which case, it might make sense to hire a top-notch PR team...