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Categorized | Financial

SEC charges Cooperman with insider trading

Posted on September 21, 2016

Leon Cooperman, chairman and chief executive officer of Omega Advisors Inc., speaks during a Bloomberg Television interview in New York, U.S., on Tuesday, Oct. 13, 2015. Cooperman said the U.S. Securities and Exchange Commission needs to address market structure problems caused by super-fast computers. Photographer: Chris Goodney/Bloomberg©Bloomberg

The top US securities regulator charged billionaire investor Leon Cooperman and his hedge fund with insider trading on Wednesday in one of the highest profile cases since Steven Cohen’s SAC Capital pleaded guilty to illegal trading three years ago.

The Securities and Exchange Commission alleges Mr Cooperman “generated substantial illicit profits” of $4.1m by buying securities in Atlas Pipeline Partners, on the basis of inside information provided by a senior executive in the US-listed company.

    Mr Cooperman — one of New York’s most outspoken and highest-profile hedge fund managers — said he and his Omega Advisors hedge fund “have done nothing improper and categorically deny the commission’s allegations”, and have hired the law firm Paul, Weiss.

    Mr Cooperman and Omega are also being investigated by the US Attorney’s Office.

    The charge against Mr Cooperman risks dealing a further blow to the credibility of an industry suffering from client anger over poor investment returns and high fees.

    The SEC alleges Mr Cooperman and Omega accumulated APL securities despite agreeing with the executive not to use material non-public information for trading purposes. After APL publicly announced the sale of its gas processing facility in Elk City, Oklahoma, its stock price jumped more than 31 per cent.

    Mr Cooperman and Omega held a significant stake in APL before he allegedly was provided with the inside information, but had started selling down shares in the company in early 2010. Before learning that APL planned to sell a significant asset in July 2010, Mr Cooperman described the company as “a shitty business” to a consultant working for Omega, according to the SEC complaint. After receiving the inside information he allegedly started building up his position.

    In a letter to his investors, Mr Cooperman wrote that “none of the APL trading at issue is indicative of someone trying to position themselves ahead of an anticipated market-moving announcement, or to reap profits from inside information”.

    “Our approximately eight-year investment in Atlas Pipeline was based on fundamental research, rigorous analysis, and insight — not inside information,” he wrote.

    When Omega received a subpoena, the SEC says Mr Cooperman “contacted the executive and tried to fabricate a story to tell if questioned”. The executive was “shocked and angered” to learn that Mr Cooperman had traded ahead of the sale announcement, according to the complaint.

    The SEC also said Mr Cooperman violated federal securities laws more than 40 times by failing to report information in a timely fashion about his holdings in listed companies.

    The SEC has been ramping up its pursuit of insider trading. This year has seen the wind-down of Visium Asset Management following SEC charges of fraud and insider trading, and the apparent suicide of one of the money managers in question, who had pleaded not guilty. Three years ago, SAC paid $1.8bn in fines over insider trading, and, while Mr Cohen was not charged with any offence, he was banned from overseeing outside money until 2018.

    Mr Cooperman said the US Attorney’s Office informed Omega that it “has not completed its investigation but has determined not to pursue charges for the time being pending the Supreme Court’s decision in Salman v United States”.

    That case, set to be argued on October 5, will determine whether there must be a personal benefit or a consequential exchange of value to establish insider trading.