Linn Energy LLC (NASDAQ:LINE) falling out of line with SEC norms
The oil and natural gas partnership, Linn Energy LLC (NASDAQ:LINE), that agreed to buy Berry Petroleum Co. for $2.42B. It dipped the most in over three years after it disclosed a U.S. SEC inquiry into this deal as well as its accounting. Linn dropped 18.74% percent to $27.05 at Tuesday’s closing. This was the biggest intraday drop since 2010 May 2010. The stock of the affiliate, LinnCo LLC will be utilized for the purchase. It dropped 11% to $32.81 and Berry declined 5.5% to $39.99.
After the markets closed yesterday, LINE and LinnCo stated that SEC staff had notified them of the “non-public inquiry”. Investigators have asked for all the documents that pertain to the Berry deal. As per the statement, they also want documents relating to some financial measures and hedging strategies.
LINE had agreed in February, to buy Berry in a bid to raise its oil reserves and also to provide sufficient cash-flow to boost payments to all its unit-holders. This partnership came under a lot of criticism as it had used options for guaranteeing a price for the company’s gas output. In an 18 June statement, an independent research company, Hedgeye Risk Management LLC said that LINE is not accounting for the entire cost of the capital expenses like drilling and also for the put options. In response to this inquiry disclosure, at least five analysts down graded the company.
The investment world is a complex and fascinating one but one that can be very fruitful as well. In the banking world the federal government guarantees the deposits of investors. However, in the stock market, securities and bonds can lose their value and the word guarantee does not exist and investing is no spectator sport. The only way that investors can probably protect their investments in the securities market is by asking a lot of questions and conducting research.
What is the SEC role?
U.S. Securities and Exchange Commission’s mission is to protect the interests of investors, maintain orderly, fair and efficient markets and also facilitate capital formation. Today, a larger number of first time investors are now turning to the stock market in a bid to securetheir futures and provision for retirement, childrens college funds and also pay for the roof above their heads. Sound market regulation is the one way of protecting the interests of these people and that is what the SEC does.