Leon Cooperman Ordered to Trial in SEC Insider-Trading Caseby and
SEC sued billionaire investor over trades after phone call
Federal judge says SEC advanced “plausible claim” in suit
Omega Advisors Inc. founder Leon Cooperman must face a lawsuit brought by the U.S. Securities and Exchange Commission alleging the billionaire investor reaped more than $4 million in illegal profits after conversations with a company insider, a judge ruled in rejecting his request to throw out the case.
U.S. District Judge Juan Sanchez in Philadelphia said Monday that the agency had advanced a “plausible claim for insider trading,” and he pushed the case closer to a trial. Sanchez also dismissed claims that Cooperman failed to file required reports about his beneficial ownership of stocks of eight public companies. The judge scheduled jury selection for November.
While the ruling is an early setback for Cooperman, the case will ultimately test the SEC’s novel theory that outsiders are liable for trading on inside tips even if they received the information before agreeing not to use it. Both Cooperman and the SEC said the case was the first such lawsuit brought by regulators.
Cooperman said he looks forward to going to trial to prove his innocence and declined to comment further. Judy Burns, an SEC spokeswoman, declined to comment on the decision.
The SEC sued in September, accusing Cooperman of using his status as one of Atlas Pipeline Partners GP LLC’s largest shareholders to obtain confidential information from an unnamed executive during telephone calls in July 2010. Cooperman hasn’t been charged with criminal wrongdoing.
At a hearing in February, Cooperman’s lawyers argued that the case was the first by the SEC to focus on the timing of the disclosure. His lawyers told Sanchez that Cooperman was under no obligation to refrain from trading following his calls with the executive because any purported promise he made came after he had already received the information.
“You may have broken your promise not to trade, but you haven’t misappropriated," Daniel Kramer, a lawyer for Cooperman, said during the hearing. “Not every broken promise is fraud.”
Bridget Fitzpatrick, a lawyer for the SEC, urged Sanchez to let the case proceed to trial. Cooperman, she said, was pursuing an “astounding theory” and attempting to create a “new loophole” in securities laws by claiming he had no duty to refrain from trading after his calls with the insider. Cooperman could have told the insider he intended to trade but chose not to, Fitzpatrick said.
“They come forth with a very clever argument that gives him a free pass for
deception,” Fitzpatrick said. “The statute prohibits deceptive conduct.”
Sanchez said accepting Cooperman’s argument would create a “loophole” that would shield companies and outsiders from liability when an insider provides confidential information. Previous cases show that the SEC’s theory of insider trading in the case doesn’t require an agreement not to trade to precede the disclosure of such information, the judge said.
“Courts have made clear that the central concern of insider trading under the misappropriation theory is the deception that occurs at the time the outsider uses material nonpublic information to trade in securities,” Sanchez said.
Cooperman, 73, who has a net worth of $2.1 billion, founded Omega Advisors in 1991 after a 25-year career at Goldman Sachs Group Inc. His firm, which had $3.5 billion under management at the end of January, is among the oldest in the industry, and he’s built a reputation as a stock picker over almost half a century by scrutinizing undervalued companies and asking management tough questions. He had annualized returns of 11 percent from 1991 through July 2016.
The case is SEC v. Cooperman, 16-cv-05043, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).