Linn stated on March 16, 2016 that bankruptcy may be unavoidable. This will leave many who have invested their life savings in this investment looking to change their financial outlook.
For many of these investors, Linn Energy was never a suitable investment. Brokerages that allow the sale of unsuitable investments are responsible for the ultimate losses sustained by their investors. Brokers and financial advisors have a duty to only sell suitable investments to investors.
To be suitable, the investment must be consistent with the wants and needs of the investor. Linn Energy is, and has always been, a speculative investment. Unless you are a speculative investor and could afford to gamble on high risk investments Linn Energy was unsuitable for you. The list of people for whom Linn would be unsuitable includes, but is not limited to, any one of the following: conservative to moderate investors; investors reliant upon investments for income; and individuals who would have difficulty re-earning the funds invested in Linn if the investment were completely lost. The recommendation to invest in Linn can be the result of either negligence or fraud. Irrespective, the broker’s or financial advisor’s employer is responsible for losses as the result of unsuitable recommendations.
The risk surrounding Linn is not just from the falling oil market. The potential tax consequences for its investors if Linn were to restructure some of its debt will also impact the value of the investment. When debt is restructured debt that is forgiven is, for tax purpose, treated as income.
Since LINN is an LLC, the tax liability belongs to the investors holding Linn shares. LLCs are popular because income is only taxed once, unlike regular corporations where the income of the corporation is taxed and the resulting dividends are also taxed. While the single taxation is popular because it means less taxation of income when things are good, the downside is that investors are responsible for the tax the LLC cannot pay when things are bad. That can accelerate the decline of an LLC when industry challenges, such as a decrease in the price of oil, occur.
This is all in addition to the likely losses that shareholders would feel from that restructuring and oil prices that may not rise above $40 per barrel in the near future. Please call for more information.
The Law Offices of Jeffrey Pederson has represented investors with suitability claims in FINRA arbitrations across the country. Most cases handled on a contingency basis.