In a ruling on July 9th, Judge Colleen McMahon dismissed, with prejudice, the securities class action litigation filed against LINN Energy, an onshore oil and natural gas company, and LinnCo, holding that the plaintiffs failed to demonstrate that the company had lied in their accounting practices for $330 million worth of hedge costs, option premiums and other expenditures. Judge McMahon dismissed accusations of misstatements, omissions and fraud under the Securities Act of 1933 and the Securities Exchange Act of 1934 against the two Linn entities, nine Linn executives and 16 underwriter companies. It’s “perfectly clear that, at all times, Linn and LinnCo told the whole truth and nothing but about how they were calculating … all non-[standard accounting] metrics for which there is no ‘right’ formula,” Judge McMahon said. The unit-holder plaintiffs had taken suit over calculations that affected their dividend-like payouts from the company that came out of its distributable cash flow. The plaintiffs said that in 2010, 2011 and 2012, Linn failed to disclose that it didn’t deduct a total of $330 million worth of put-option premiums from the distributable cash flow number, resulting in unit-holders’ expectations of higher future payouts. Judge McMahon ruled that there was no standard by which Linn had to account for those types of costs, and that therefore Linn committed no wrong in using their own. She held that the Plaintiffs failed to plead any misstatement or omission by LinnCo. “Plaintiffs take issue with the way Linn chose to calculate these metrics, but that is of no moment. It is not fraudulent for a reporting entity to calculate metrics that are not defined … as long as the public is told exactly what the company is doing,” the judge said.
