Famed investor Leon Cooperman was accused of insider trading by U.S. regulators in the government’s highest-profile case against a hedge fund manager since its crackdown on SAC Capital Advisors.
Marking the culmination of an investigation that dates back to at least 2011, the Securities and Exchange Commission said Cooperman, 73, used his status as one of Atlas Pipeline Partners’ largest shareholders to obtain confidential information from a company executive. He earned about $4 million by buying securities in Atlas before the sale of a company asset in 2010, which caused shares to jump 31 percent, the SEC said Wednesday in a statement.
“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,” Andrew Ceresney, head of SEC’s division of enforcement, said in a statement.
Cooperman’s firm, with $5.4 billion in assets under management as of Aug. 31, is among the oldest in the industry. He’s built a reputation as a stock picker over almost half a century by scrutinizing undervalued companies and asking management tough questions. He previously headed Goldman Sachs Asset Management and worked at the Wall Street firm for 25 years before leaving in 1991. Like other hedge fund managers accused of wrongdoing, he could now be fighting for his firm’s survival and his legacy.
Cooperman said in a letter on Wednesday to investors he strongly disagreed with the SEC’s allegations and that the firm hasn’t engaged in any unlawful conduct. He’s planning to hold a conference call with investors later in the day.
In his letter, Cooperman said Omega had been told by federal prosecutors that they haven’t wrapped up their own investigation into the firm. Still, prosecutors have decided not to pursue charges against Omega at this time because of concern tied to a U.S. Supreme Court case, Cooperman said.
When Omega Advisors received a subpoena in 2011, Cooperman contacted the Atlas company executive and urged him to fabricate a story in case they were questioned about their conversations, according to the SEC. The unidentified executive was shocked and angered when he learned that Cooperman had traded in advance of Atlas’s announcement, the regulator said.
Omega first invested in Atlas in June 2007, according to Cooperman’s letter to investors. At the time, the natural gas company was led by Edward Cohen. Cooperman said in his letter that he had known a “number” of members of the Cohen family “for many years.”
By 2010, the SEC said Cooperman had changed his view on Atlas, telling a consultant to the company that it was a “shitty business.” He took a bearish position on the stock in the first half of that year. But after learning of a pending asset sale, Cooperman changed his mind again and began buying call options and other securities, the regulator said.
The night before Atlas’s July 28, 2010, public announcement, Cooperman e-mailed a family member to say the company had struck a deal to sell one of its facilities for $682 million and that he thought the stock was worth at least $15 a share. The unidentified family member, who was also a hedge fund manager, then forwarded Cooperman’s e-mail to a colleague, who replied that the deal explained “fishy” call options.
The SEC said Cooperman “carefully guarded” the illicit information on Atlas, never previously sharing it with his hedge fund relative. The day of Atlas’s public announcement, Cooperman’s relative reached out to an executive at the energy company to complain about suspicious trades two weeks earlier.
“I also would like to make sure the SEC looks into the shady option trades,” Cooperman’s relative wrote in an e-mail to the Atlas executive. “How do I become a whistleblower?”
Cooperman, in his Wednesday letter to investors, said his son, Wayne, was betting against Atlas shares at his hedge fund, Cobalt Capital Management. Cooperman said he did not share any information with Wayne about the Atlas asset sale or even know Cobalt was shorting the company’s shares before the July 28 announcement, according to his letter.
Wayne Cooperman didn’t return a phone call or an e-mail seeking comment.
In addition to the insider trading, the SEC said Cooperman violated federal securities laws more than 40 times by failing to disclose or delaying disclosure of the fact that his firm had breached a 5 percent ownership threshold in eight different companies. Had his stakes been known to the broader market, the stock prices probably would have been pushed higher. As a result, Cooperman was permitted to trade at “advantageous prices,” the SEC said.
The SEC’s complaint seeks disgorgement of ill-gotten gains plus interest and penalties against Cooperman and Omega Advisors, as well as a permanent ban against the hedge fund manager.
Cooperman told clients in a letter dated March 21 that he and his firm received a Wells notice regarding an investment in a single issuer that it had since 2007, according to a person familiar with the matter at the time. Cooperman later told CNBC that the probe centered on trading of Atlas, a midstream operator that ran networks in Oklahoma, southern Kansas, Texas and Tennessee before merging with a Targa Resources Partners LP unit more than a year ago.
The hedge fund manager first established a stake in Atlas Pipeline in the fourth quarter of 2007, according to SEC filings. The position increased substantially in late 2010 and again in late 2013, according to data compiled by Bloomberg. Omega also showed a stake in Targa after it bought Atlas last year.
Stocks in which Omega owns a substantial portion of shares outstanding, including First Data Corp., Altisource Portfolio Solutions SA, HRG Group Inc. and Navient Corp., fell when news of the allegations against Cooperman were announced.
Steve Cohen’s SAC Capital pleaded guilty to securities fraud in 2013 and agreed to pay a record $1.8 billion fine. At the time, the firm agreed to return outside money to investors and turn into a family office managing Cohen’s money.