According to the law firm press release, LinnCo is a Delaware limited liability company whose sole purpose is to own units representing limited liability company interests ("units") in Linn Energy, LLC ("Linn"), an independent natural gas exploration and production company whose units trade on NASDAQ under the symbol "LINE."
On October 12, 2012, LinnCo's IPO Registration Statement became effective. As alleged in the complaint, certain metrics set forth in the Registration Statement (adjusted EBITDA, distribution coverage ratio, and distributable cash flow) were not, contrary to representation in the Registration Statement, accurate or reliable measures of Linn's ability to make distributions because these metrics did not, among other issues, reflect the cost to Linn of settled put options.
In two articles published in February 2013 and in May 2013, Barron's questioned Linn's aggressive accounting practices. Among other things, Barron's criticized Linn for masking considerable weakness in its distributable cash flows, thus calling into question the sustainability of its dividend. Barron's questioned Linn's accounting for its derivative contracts by excluding the cost of its puts from its cash flow, while including the gains.
Following the May 2013 Barron's article, Linn units declined 7%, to close at $35.75 per unit on May 6, 2013. In turn, LNCO shares dropped nearly 8% to close at $39.24 per share on May 6, 2013.
On July 1, 2013, Linn and LNCO disclosed that the SEC had opened an informal inquiry into LNCO's proposed merger with Berry, and Linn and LNCO's hedging strategies and use of non-GAAP financial measures (the same accounting issues for which Linn and LNCO had been criticized by Barron's).
On this news, LNCO shares dropped $10.12 per share, or 27.3%, within two trading sessions, to close at $26.95 per share on July 3, 2013.