Leon Cooperman’s insider trading battle with the SEC

Hedge fund billionaire Leon Cooperman’s battle with the Securities and Exchange Commission shows no signs of going away, with the SEC earlier this month accusing Cooperman of trying to create a “loophole that rewards deception” in his bid to throw out the insider trading case against him. And the long-shot logic behind Cooperman’s defense suggests just how strong the SEC’s case might be.

Cooperman, the CEO of Omega Advisors, is accused of making dozens of trades in Atlas Pipeline Partners securities in 2010, netting profits of $4 million, after learning from a company insider that the troubled oil and gas company was on the verge of a merger deal. To make matters worse, the SEC accuses Cooperman of trying to cover up his conversations and, according to its initial complaint filed in September, has three witnesses to bolster its case.

For the update, please read my latest Fortune story.



Last year, I laid out the prosecutor’s case against Cooperman for Institutional Investor Alpha.  http://www.institutionalinvestorsalpha.com/Article/3644746/The-Case-Against-Leon-Cooperman.html

Since most of the story is behind the paywall, I’ve excerpted the first few paragraphs below.

By July 2010, Leon Cooperman was having a bad year. The flagship hedge fund of Omega Advisors, his then-19-year-old firm, was down almost 5 percent through June — a decline that threatened the comeback he had been enjoying since the financial crisis of 2008, when Omega lost 35 percent of its value in the stock market rout. In 2009, Cooperman had bet the market would recover, and his prognostication had proved correct: His fund gained 52 percent that year.

But in 2010, as the May “flash crash,” the BP oil spill, and troubles in Greece pummeled the market — it bottomed on July 2, down 16 percent — the veteran hedge fund manager, then 67 years old, was watching some of his long-term holdings tank. One in particular rankled so much that on July 7 Cooperman called an Omega consultant and referred to the company, a small, Pennsylvania-based oil and gas concern called Atlas Pipeline Partners, as “a shitty business,” according to a Securities and Exchange Commission complaint, filed in a Pennsylvania federal court, alleging insider trading in Atlas securities. Indeed, shortly after criticizing the business in such crude terms, Cooperman learned from an insider that Atlas was preparing a sale of one of its operations, and he began to buy up the company’s shares, options, and bonds, the SEC says.

On September 21 the SEC charged Cooperman and Omega with insider trading in Atlas securities, making illegal profits of about $4 million. In an unusual move, the SEC threw in minor charges alleging more than 40 instances where Omega flouted reporting requirements regarding its ownership of other stocks — a seeming attempt to show disregard for the rules. And that’s not all: The case is replete with allegations of broken confidentiality, dozens of suspect trades and a pattern of misconduct; at least three government witnesses confirming Cooperman’s alleged misdeeds; and even an alleged cover-up. Add it all up, and the SEC has stitched together a compelling story of alleged illegal activity that could be hard to overcome.

“When juries hear those facts, they think it’s not the kind of thing innocent people do,” says Terence Healy, a former SEC assistant chief litigation counsel who is now a partner at Hughes Hubbard & Reed. If Cooperman is not stopped, the SEC says, he will continue to break the law.

The allegations have shocked the already troubled hedge fund world. For his part, Cooperman has denied the charges and vowed to clear his name.

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