SEC, Cooperman Settle Insider Trading Claims

The Commission settled its hotly contested insider trading case against well-known hedge fund manager, Leon Cooperman. SEC v. Cooperman (E.D. Pa. Filed Sept. 21, 2016). Under the terms of the settlement Mr. Cooperman consented, without admitting or denying, to the entry of a permanent injunction prohibiting future violations of Exchange Act Sections 10(b), 13(d) and 16(a). His firm, Omega Advisors, Inc., consented on the same basis to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 10(b). The defendants also agreed to pay, on a joint and several basis, disgorgement of $1,759,049 and prejudgment interest as well as a penalty equal to the amount of the disgorgement. Mr. Cooperman will pay an additional penalty of $1 million tied to the 16(a) charges.

Under the terms of the settlement Omega will retain a Compliance Consultant for a term that will extend to May 1, 2022 or the point in time when firm is no longer a registered investment adviser. The Compliance Consultant, Omega and Mr. Cooperman will “implement a system that requires that Defendant, Omega and/or any of their agents . . . who make a decision to trade or otherwise commit capital to a security and/or direct a trade of any security . . .[to] certify in writing that, prior to execution of such trade, the Trader was not aware of any material nonpublic information . . .” Monthly certifications will also be submitted to the staff by the Defendants stating that they were not aware of any inside information.

The Compliance Consultant will, in addition, review the training, policies and procedures and practices of the firm and Mr. Cooperman with respect to compliance and formulate recommendations for policies and procedures for Omega which will be adopted. A written report will be submitted to Omega, Mr. Cooperman and the Commission staff. The Compliance Consultant will also retain a nationally recognized law firm to conduct at least two trainings per year. The filing of Section 16(a) reports will also be outsourced to a law firm not unacceptable to the Commission staff.

The case centered on trading in the securities of Atlas Pipeline Partners, L.P. or APL by defendant Omega Advisors, a registered investment adviser controlled by Mr. Cooperman, according to the Commission’s complaint. The firm furnishes advice to Omega’s hedge funds and other institutional accounts. The trading took place prior to the announcement on July 28, 2010 by APL that it had entered into an agreement to sell its Elk City operating facilities to Enbridge Energy Partners, L.C.

In mid-May 2010 Enbridge made an offer to purchase Elk City for $720 million. From May through July 2010 Enbridge and APL negotiated the sale of Elk City under the terms of a confidentiality agreement. The discussions were reviewed at a board meeting on June 18. The board planned to consider the sale at a meeting on July 27, 2010. Before that date APL agreed to sell Elk City subject to board approval.

Mr. Cooperman, who has been a hedge fund manager for years, was the beneficial owner of over 9% of APL common stock as of December 31, 2009. This gave Mr. Cooperman a significant level of access to the firm – a technique he had used in the past. Through the first half of the year he reduced his stake in APL, directing controlled accounts to sell millions of dollars in stock. Each day through July 7, 2010 the Cooperman related accounts were net sellers of the stock. APL was having financial difficulties. Mr. Cooperman believed that APL was, in his words, a “shitty business.”

On July 7, 19 and 20 Mr. Cooperman spoke with APL Executive I on the telephone. He learned that the firm was negotiating the sale of Elk City for about $650 million. On July 7 a Cooperman account began buying APL call options. Additional purchases of APL securities were made on July 8, 13, 15, 16, 19, 20, 21, 22, 26 and 27. During the buying Mr. Cooperman again spoke with APL Executive I.

On July 22, Mr. Cooperman spoke with APL Executive 2. During the conversation he asked about the Elk City sale. The Executive was surprised that Mr. Cooperman knew about the transaction. Five days later Executive 1 told Mr. Cooperman that the board had approved the deal. That same day Mr. Cooperman emailed a family member about the transaction. He also emailed two Omega trades, noting that APL had done a major deal. Following the deal announcement defendants had over $4 million in trading profits.

Subsequently, Mr. Cooperman attempted a cover-up, according to the complaint. He told Executive 1 that a subpoena relating to trading in APL securities prior to the deal had been sent to Omega. He then sought the Executive’s assurance that they had not shared confidential information prior to the transaction. The Executive thought Mr. Cooperman was attempting to fabricate a story the SEC claimed. The complaint also alleged that Mr. Cooperman violated the beneficial ownership reporting provisions of the securities laws over a period of years.

Violations of Exchange Act Sections 10(b), 13(d) and 16(a) are alleged in the complaint. At the time the SEC filed its case the U.S. Attorney’s Office reportedly was awaiting the decision of the Supreme Court in the Salman insider trading case. While that case was decided in December 2016 no criminal charges have been brought to date.

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