Early Warning: Here's What The Analyst Who Uncovered Enron Thinks About Chesapeake

From Forbes: Secret hedge funds, off-balance-sheet financings, big perks for directors, sweetheart drilling deals and giant non-recourse loans for Chief Executive Aubrey McClendon — it all means that “crony capitalism has been alive and well,” says John Olson. “History seems to be repeating itself in just another way.”

Olson ought to know. He uncovered Enron. Back in the 1990s Olson, a veteran energy industry analyst, was a lonely voice in the wilderness; he was skeptical about Enron for a decade before its collapse. He became a target of Enron‘s Ken Lay, and lost his job at Merrill Lynch because he refused to go bullish on the company. He subsequently worked at Sander Morris Harris, ran a hedge fund, and now, at 69, handles investments for friends and family.

So what’s his take on Chesapeake? Olson quotes philosopher Fredrich Hegel, “The only thing we learn from history is that we don’t learn from history.”  For the most part, he says, the Enron comparison doesn’t stand up to scrutiny.  But there are some scary echoes between the companies. And especially in the financial finagling that Chesapeake has become known for, it appears that Chesapeake has learned a few lessons from Enron.  Clever traders at Enron and El Paso Energy created many financing tricks that in the years since have become part of the financing trade: derivatives, synthetic credit default swaps, deals financed with little or no equity. “Enron was the past master, but the game just resurfaced,” says Olson, referring to wild west deal making that inflated the housing bubble and led to the collapse of Lehman Bros. “They took it to a $3 trillion exposure.”  That makes him a little concerned about Chesapeake, which has long trumpeted its active trading and hedging strategies. “You don’t know what they have. I know that I don’t know.”

Find out more at http://www.forbes.com/sites/christopherhelman/2012/06/04/enron-chesapeake-olson/