One out of every 13 shares available for trading was sold short as of April 24, close to the 8.5 percent level reached last month that was the highest in 3 1/2 years, according to New York-based research firm Data Explorers. That's more than double the average for energy producers in the Standard & Poor's 500 Index.

So-called short investors bet a stock will fall by selling borrowed shares with the expectation of repurchasing them at a lower price.

Seeking to counter criticism that its oversight was too lax, the company said in a statement yesterday its board would review all financing transactions between McClendon and “any third party that has had or may have a relationship with the company in any capacity.”

The U.S. Securities & Exchange Commission has opened an informal inquiry into the loans, Reuters reported yesterday, citing an unidentified source familiar with the matter. SEC spokesman Kevin Callahan declined to comment.

Jim Gipson, a Chesapeake spokesman, didn't respond to a phone message or e-mail requesting comment.

Controversy over McClendon's personal portfolio has compounded the impact of collapsing gas prices on Chesapeake's shares, Sean Sexton, managing director at Fitch Inc., the Chicago-based credit-rating company, said yesterday in an interview. U.S. natural-gas futures, pressured by a supply glut from new wells in shale formations, lost 54 percent of their value in the past year.

Turmoil Danger

Chesapeake fell 3.1 percent yesterday to $17.56 in New York.

The turmoil could hamper Chesapeake's ability to meet its “massive” funding requirements stemming from its aggressive spending and weak cash flow, Scott Sprinzen, a debt analyst at S&P in New York, said yesterday in a note to clients. Sprinzen lowered Chesapeake's corporate credit and senior secured debt ratings to BB from BB+.

Chesapeake's 4.5 percent convertible preferred shares tumbled more than 8 percent today, the biggest decline since December 2008, on concern the company's ability to pay a quarterly dividend may be impaired.

Questions about potential conflicts of interests involving McClendon's personal finances stirred debate over his continued role at the company. Mark Hanson, a Chicago-based analyst at Morningstar Inc., said the board should separate the chairman and CEO positions to minimize McClendon's influence over a panel that is supposed to watch over him. Philip Weiss, an Argus Research analyst in New York, said McClendon and the entire board should be fired.

“The decision about whether Aubrey should go ought to be left to a board that is able to operate independently from him,” said Michael Garland, director of corporate governance for New York City Comptroller John C. Liu. “Given the litany of historic indications and most recent indications, this board appears to be incapable of doing that.”

The city comptroller's office, which says it manages 1.57 million Chesapeake shares worth $28.4 million in pension funds, has proposed that the company allow large, long-term shareholders to nominate board candidates. A vote is scheduled at the company's June 8 annual meeting in Oklahoma City.

For most of the past 23 years, McClendon has purchased as much as 2.5 percent in every well the company has drilled. The program was established to tie the CEO's fortunes to company performance and requires McClendon to cover a proportionate share of each well's expenses.

$846 Million in Loans

His share of such costs was $973 million for the 2009 to 2011 period, the company said in an April 20 filing.

McClendon got a $1 billion line of credit with EIG Management Co. LLC, according to a Nov. 18 deed filed in Brooke County, West Virginia. EIG Management is a unit of EIG Global Energy Partners LLC, which participated in a $1.2 billion preferred-shares purchase in a Chesapeake subsidiary on April 9.

McClendon said in a separate statement yesterday that he personally had $846 million in outstanding loans related to the well-participation program.

The directors yesterday backed away from last week's endorsement of McClendon's practice of using his stakes in company wells as collateral to secure those loans. Chesapeake General Counsel Henry J. Hood issued an April 18 statement that directors were “fully aware of the existence of Mr. McClendon's financing transactions” and that they didn't represent a conflict of interest.

By that, he meant directors were “generally aware” that McClendon had used his interests in company-operated wells as collateral for personal loans, and the board hadn't reviewed or approved any of the individual transactions, Oklahoma City-based Chesapeake said in its statement yesterday.

“The board was aware of but neither approved or reviewed the loans. Where were they? They have an obligation to look deeper,” Garland of the New York City comptroller's office said yesterday in an interview.

Under McClendon's stewardship, Chesapeake is planning to sell $14.9 billion in assets by the end of next year to close a funding gap that Standard & Poor's estimates could reach $9 billion in 2011. The company raised $2.6 billion earlier this month through the sales of preferred stock, gas fields and future production.

2008 Free Fall

The recent decline in Chesapeake's stock price is reminiscent of late 2008, when McClendon was forced to sell almost all his stock in the company to meet margin calls. McClendon dumped millions of shares over the course of a few days, accelerating a freefall in October and November 2008 that wiped out more than half the company's market value.

Andrew Behar, chief executive officer of As You Sow, a San Francisco-based corporate-activism group that has clashed with Chesapeake over environmental issues, doubted the latest controversy would cost McClendon his job.

“They'll find some jiu-jitsu way of rationalizing his behavior,” Behar said “Aubrey McClendon operates that company in his own image.”

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