Just two weeks ago, the unbelievable happened in Oklahoma City. As a bankruptcy attorney in Indiana for almost twenty-five years, I’m used to the fact that life’s reversals can drive even the once well-to-do to the brink of bankruptcy. In my bankruptcy blogs, I’ve often listed the three main causes of personal bankruptcy – medical bills, job layoffs, and divorce. More typically, it’s some combination of all three that hurts people’s finances so badly that they must turn to the bankruptcy system for relief. Small business bankruptcies can be caused by lawsuits, weather disasters, disputes between partners, or a downturn in a particular industry or in the economy in general. After working with tens of thousands of people facing bankruptcy or foreclosure over the years, I thought I had seen and heard just about everything. I must tell you this radio news bulletin from Oklahoma City surprised even me.
You may not have heard of Aubrey McClendon, but he’s the co-founder and the Chief Executive Officer of a company in Oklahoma called Chesapeake Energy. Chesapeake is the largest independent producer of natural gas in the United States. McClendon, as it turns out, had borrowed massive amounts of money to buy more stock in Chesapeake. He was betting that even if the rest of the economy was down, energy stocks would always do well. This was no small investment decision on Aubrey McClendon’s part – after this latest purchase, he owned more than thirty three million Chesapeake shares! At the time of the purchase, according to the New York Times, Chesapeake stock was trading at $60 a share; that meant McClendon was worth two billion dollars!
The problem was that, on a very large scale, McClendon did what so many of my bankruptcy clients had done in a smaller way – purchase stuff with borrowed money. Back in 2006, he’d invested millions in Michigan real estate, and, having lost a lot of money there, didn’t have enough cash to buy all the Chesapeake stock he wanted to own. So, he bought the stock on margin, which means he borrowed money and used the stock itself as collateral for the loan. When energy prices fell rather than rising the way Aubrey had expected, he got the margin call of all margin calls. (In a margin call, the investor must deposit cash or other assets for collateral for the borrowed money.) Two weeks ago, McClendon was forced to sell his shares (during one of the worst downturns in recent history, no less!) to repay his loans. In one transaction his net worth plummeted from double billionaire almost to…well, closer to, anyway.. the level of an Average Joe.
Now, as I brought out in an earlier blog This Anderson Bankruptcy Attorney Knows It Can Happen to Anybody, my purpose in telling stories of rich and famous people who were forced into bankruptcy is never to gloat over anyone’s misfortune. What I’ve found over the years is that, when people are first meeting with me in one of my bankruptcy law offices, they’re feeling very alone. It’s important for them to realize they’re far from being alone. And, it’s precisely because “life happens” even to very smart, very hardworking, and sometimes even very rich people, that our society has provided the bankruptcy safety net to provide relief and offer a fresh start.