SEC SealThe SEC charged hedge fund manager Leon G. Cooperman and his firm, Omega Advisors, with making more than $4 million in profits from trading on material inside information. As alleged, Cooperman received confidential information from an Atlas Pipeline Partners executive about an impending sale by the company of a major corporate asset, a natural gas processing facility. Funds managed by Cooperman allegedly relied on the inside information and traded ahead of the public announcement of the deal.

Following the announcement, the Atlas stock price increased by more than 31 percent. The SEC filed its complaint in federal district court in Philadelphia, seeking disgorgement of ill-gotten gains plus interest, penalties, injunctive relief and an officer-and-director bar against Cooperman. Cooperman has denied all charges.

According to the complaint, Cooperman utilized a strategy of accumulating large positions in publicly-traded companies and developing close relationships with those companies' senior executives. He beneficially owned more than nine percent of Atlas’ common stock, worth approximately $46 million, at the time of the trades in question. According to the SEC, Cooperman developed close relationships with Atlas's senior executives.

During the first half of 2010, Cooperman significantly reduced his stake in Atlas. During the year, until July 7, 2010, there was no day on which the Cooperman funds collectively were net buyers of Atlas common stock, call options or bonds. In an April 30, 2010, email, Cooperman stated that he was "scaling out of Atlas on strength." In July 2010, Cooperman allegedly used a derogatory expletive to describe the Atlas business model in a conversation with a fund consultant.

On at least three occasions that same month, Cooperman allegedly spoke with a senior Atlas executive, who informed him that Atlas was negotiating the sale of the natural gas plant for approximately $650 million. Despite knowing that information about the sale was material and nonpublic, the executive told Cooperman about the sale because he believed Cooperman had an obligation not to use this information to trade in Atlas securities. The SEC alleged that Cooperman explicitly agreed that he could not and would not use the confidential information for trading purposes. The SEC alleged, however, that Cooperman did not refrain from trading on the information, and bought call options as well as common stock and Atlas bonds.

On the day before Atlas announced the sale, Cooperman sent an email to a family member, who also was a hedge fund manager, describing the transaction. Cooperman's family member forwarded the email to a colleague who replied, in part, "that explains the fishy $17 August calls, etc. I still haven't come across any press release, want to see how it's discussed." Cooperman's family member responded that “somebody should investigate that."

The SEC alleged that Cooperman’s funds generated profits of approximately $4.09 million by trading Atlas securities at Cooperman's direction between July 7, 2010, and July 27, 2010. According to the complaint, Cooperman contacted the Atlas executive after receiving a subpoena and tried to fabricate a story for the executive to tell if questioned about this trading activity. The SEC also charged that Cooperman violated federal securities laws more than 40 times by failing to timely report information about his holdings and transactions.

The SEC charged Cooperman and Orion under a misappropriation theory rather than as a tippee. The use of the misappropriation theory eliminates the impact of the 2nd Circuit’s Newman decision which held that a court must find that a tippee knew that the insider disclosed confidential information in exchange for a personal benefit.

For more information, see here and here.

Complaint, SEC v. Cooperman (E.D. Pa., Sept. 21, 2016).