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A yellow Encana natural gas pipeline marker is seen along a road on state forest park land in Kalkaska, Mich.REBECCA COOK/Reuters

Encana Corp. has frustrated investors on three fronts: its natural gas strategy, its weakening balance sheet, and its recent decision to add millions to its capital spending budget despite shaky commodity prices. But now, with the company's ethics in question because of collusion allegations, top executives are facing a dangerous level of disappointment from investors.

The company's senior management team have always been considered squeaky clean. But Encana's reputation is at risk now that Michigan is investigating allegations it worked with a major competitor to suppress the price of land leases. E-mails produced by Reuters indicate that Randy Eresman, Encana's chief executive officer, knew that at least one of his deputies was in contact with Chesapeake regarding discussions of land sales. None of the allegations have been proven.

Encana's board is investigating what happened, an indication they are taking the allegations very seriously, and it is still far too early to know what, if any, action they might take. But one this is clear: With investors already frustrated by the company's financial performance, ethical – and legal – concerns could prompt the board to take action. And while it is still unclear how much Mr. Eresman was involved in the alleged land price plot, investors are losing patience.

"I think this could be the nail in the coffin, especially now that that the chairman [of the board] who is very big on ethics, looks like he is stepping up," said Laura Lau, a senior vice-president and portfolio manager at Toronto's Brompton Funds. "When it goes to the board, then somebody's head is going to roll. ... They need a fall guy."

David O'Brien chairs Encana board. It kicked off its investigation when Reuters, which on Monday published e-mails between top Encana and Chesapeake executives, contacted the company a few days ago, said Jay Averill, a spokesperson for Encana. "It is really the board directing the investigation," he said, explaining why Encana refused to comment or make Mr. Eresman available for comment on this story. Mr. Eresman was carbon copied on some of the e-mails, Reuters reported.

Jeff Wojahn, head of Encana's operations in the United States, and Chesapeake CEO Aubrey McClendon were in direct contact, according to the e-mails Reuters published. But Mr. Wojahn's involvement may not be enough to protect Mr. Eresman. The top executive should wear the blame, another fund manger said.

Typically, competition officials attempt to prosecute those with a direct hand in illegal activity, moving "up the chain as high as the evidence takes them," said Randal Hughes, co-head of competition, antitrust and foreign investment law with Bennett Jones, noting that his comments reflect how the law works, rather than specifically on Encana's situation.