As most subscribers are likely aware, we take a long-term perspective toward our holdings. Nevertheless, when we announce a new Best Buy, naturally we hope that the company and the market will accommodate that designation sooner rather than later.

Unfortunately, February Best Buy and new Conservative Holding Algonquin Power & Utilities (TSX: AQN, OTC: AQUNF) has made an inauspicious debut. The USD1.8 billion diversified energy utility was scheduled to report its fourth-quarter and full-year earnings after the market’s close on Thursday, March 5, with a management earnings call slated for the following morning.

Instead, on Thursday night, the company announced that it would postpone its earnings release until after the market’s close on March 26. In such a situation, the market tends to assume the worst, and as a result the stock dropped 9.1% during Friday’s trading session on nearly five times its usual volume.

Then, shortly after the market’s close on Friday, a press release crossed the wires from Siskinds LLP, one of Canada’s top securities class-action law firms. Siskinds announced that it has commenced an investigation into Algonquin’s accounting and other practices and disclosures, with an eye toward a possible class action on behalf of shareholders.

That’s what you call exquisite timing. Indeed, a sell-off coupled with a possible class-action chaser is perfect chum for the news media, and The Globe and Mail, Canada’s newspaper of record, happily obliged by publishing a short item summarizing this disturbing confluence of events on Friday evening.

Earnings postponements sow doubt in investors, and an investigation by a class-action firm that’s amplified in the country’s largest newspaper will certainly compound that doubt. As such, we’re bracing ourselves for further downward volatility.

Of course, we really can only speculate about what is likely to happen at this point. But we can make some educated guesses. Even so, until the forthcoming earnings release provides greater clarity on this situation, the most prudent course of action is to downgrade the stock to a hold.

So what do we think is going on here? Management’s decision to postpone its earnings release could be related to wrangling with the Canada Revenue Agency (CRA) over the tax consequences of its conversion from a trust to a corporation in late 2009.

On February 20, Algonquin announced it had received a letter from the CRA proposing to reassess the company’s income tax filings for 2009 through 2013. A portion of the company’s tax attributes—management estimates about 10% of the total—is in contention as a result of the conversion.

These tax attributes serve to offset Algonquin’s tax liability. Management says the company has accumulated sufficient tax attributes to avoid paying corporate income tax through 2022.

If the company is unable to persuade the CRA against reassessing its filings for those years, it has two more opportunities to challenge the agency’s ruling, first via CRA’s appeals division, then through the Tax Court of Canada.

Should the CRA ultimately prevail in its reassessment, then Algonquin estimates it would owe the agency a total of CAD20 million.

The company has plenty of capital to meet this potential obligation. And management says it may even be able to reduce or eliminate any taxes owed as a result of the reassessment by accelerating the use of other tax attributes.

Algonquin isn’t the only former income trust to incur scrutiny over the tax consequences of its conversion into a corporation. The Globe and Mail notes that the CRA recently trained its sights on several other former income trusts, including Exchange Income Corp. (TSX: EIF, OTC: EIFZF).

In late February, EIF announced that it had favorably resolved the dispute in an agreement that would require no cash outlay on its part. Instead, it took a CAD22.9 million write-down on the value of its deferred tax assets, causing a substantial drag on earnings of CAD1.03 per share.

Because the CRA has given Algonquin a 30-day period for its initial response, the company may be in the process of negotiating a similar outcome in time for its rescheduled earnings release.

As for Siskinds’ announcement of its investigation into Algonquin’s accounting, our initial concern was that the company was already working on a credible tip from a former company insider or other such party and timed the issuance of its press release for maximum effect.

Instead, it appears that Siskinds was simply acting upon the same public information to which we’re already privy. In other words, it’s an ambulance chaser.

In fact, it’s not uncommon to see one or more law firms pile onto a company with similar investigations following the announcement of actions ranging from mergers and acquisitions to dividend cuts to the possible restatement of past financials.

In reviewing Siskinds’ past announcements of investigations into publicly traded companies, it’s clear that these were all news-driven. And many times, these announcements were made after a company was already in serious financial straits and its share price had already dropped significantly.

If EIF’s example is instructive, then the worst that may come of this is a one-time hit to earnings. However, the onus is now on management to allay our concerns. Algonquin Power & Utilities is a hold.