Yahoo Finance Hedge fund legend Leon Cooperman charged with insider trading
Hedge fund billionaire Leon Cooperman and his firm Omega Advisors were charged with insider trading by the Securities and Exchange Commission on Wednesday.
In a civil complaint, the SEC alleges that Cooperman, 73, traded on non-public information in the summer 2010, when he learned in several telephone conversations with a corporate executive at Atlas Pipeline Partners about the impending sale of its natural gas processing facility in Elk City, Oklahoma.
The SEC also says he violated federal securities laws relating to timely reporting of securities holdings. The regulatory agency is seeking the the disgorgement of ill-gotten gains and other penalties.
“We allege that hedge fund manager Cooperman, who as a large APL shareholder obtained access to confidential corporate information, abused that access by trading on this information,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “By doing so, he allegedly undermined the public confidence in the securities markets and took advantage of other investors who did not have this information.”
Cooperman, who has been running Omega for 25 years, didn’t immediately respond to a request for comment. In March, he revealed that he had received a Wells Notice from the SEC, a letter indicating the agency would bring an enforcement action. On a call with investors, he said at the time he didn’t think the investigations would be an issue.
“We have done nothing improper and categorically deny the Commission’s allegations,” Cooperman, who has been running Omega for 25 years, wrote in a letter to investors of Wednesday, a copy of which has been obtained by Yahoo Finance.
Cooperman continued: “As I wrote last year when we first received the subpoenas, I have throughout my fifty-year career in the securities business firmly believed in detailed, fundamental research. As I explained then, that approach has long contemplated direct, face-to-face interactions with company management. Such exchanges of information with company management are appropriate, well-established in the industry, and even necessary. As a Wall Street Journal op-ed put it just last year, ‘information is not a crime.'”
Omega had been invested in Atlas Pipeline’s stock since 2007. The fund had been bearish on its position in the first half of 2010, the SEC’s complaint notes, pointing out that Cooperman previously described it as a “sh—y business.”
The SEC said Cooperman learned of the Elk City deal during phone conversations with an unnamed executive at the company based in Pennsylvania. He spoke with that executive on the phone on July 7, 9, 20, and 27. In at least one of the conversations, Cooperman allegedly learned of the $650 million sale price, the SEC complaint said.
On July 7, the day of the first phone call, Cooperman and Omega purchased a total of 1,966 Atlas Pipeline call options with a $15 strike price, expiring August 21, 2010. Atlas Pipeline’s stock closed at $9.66 per share the day the options were purchased, the SEC notes.
He continued to purchase Atlas Pipeline between July 8 and July 19. On July 19, the SEC said that Cooperman spoke with the executive at Atlas Pipeline. After the call, he made an electronic calendar entry for July 27, 20010 at 10:30 a.m. with the title “APL Board Meeting.”
On July 20, Cooperman had another phone call with the Atlas Pipeline executive at 9:43 a.m. for approximately 7 minutes. At 9:50 a.m. he called an unnamed “Omega Consultant” where he revealed that he had learned about the Elk City sale for $650 million. That same day, Omega and Cooperman purchased 3,800 out-of-the-money call options with a $15 strike price, expiring November 20, 2010. The Cooperman Offshore Account bought 61,700 shares. Cooperman also bought $50,000 worth of Atlas Pipeline bonds for an account belonging to a family member.
On the evening of July 27, Cooperman spoke with the Atlas Pipeline executive who told him the board had approved the sale, the complaint said. Shortly after, he sent an email to a family member, who is also a hedge fund manager, that said, “Good news on APL… [t]hey sold their ELK City operation for $682mm which will enable them to pay off bank debt, de-risk company because keep whole contracts largely gone and fund their Laurel Mountain obligations. We think stock worth at least $15 in near term — for what that is worth.”
The Cooperman family member forwarded the email to a colleague who replied, “That explains the fishy $17 August calls, etc. I still haven’t come across any press release — want to see how it’s discussed.” The Cooperman family member responded, “Somebody should investigate that.”
On the morning of July 28, 2010, Atlas Pipeline announced the sale Elk City for $682 million. The stock jumped 31% that day. The SEC claims that the Cooperman, Omega and family accounts generated profits of approximately $4.09 million between July 7 and July 27, 2010.
What’s more is the Cooperman family member who had emailed the “somebody should investigate that” response complained to another executive at Atlas Pipeline about “fishy” and “shady” options trades.
“I would like to make sure the sec looks into the shady options trades and volume in apl last 2 weeks or so in front of this deal[.] How do I become a whistle blower[?]” the email said.
Furthermore, sometime in late 2011 or early 2012, Cooperman told the executive at the company that Omega received a subpoena related to the trading in Atlas Pipeline shares. The SEC alleges that Cooperman “tried to fabricate a story to tell if questioned about this activity.” The SEC said this executive was “shocked” and “angry” upon learning Cooperman traded ahead of the announcement.
The SEC further alleges that Cooperman repeatedly violated securities laws by failing to timely report information about holdings and transactions in stocks that he owned. The SEC alleges that he violated securities laws 40 times.
The SEC is seeking the disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions against Cooperman and Omega.
Julia La Roche is a finance reporter at Yahoo Finance.
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