Leon Cooperman’s Omega Advisors has agreed to pay $4.9m to settle allegations he traded on inside information, ending a stand-off with US securities regulators.
Under the settlement with the Securities and Exchange Commission Mr Cooperman will not admit or deny wrongdoing or be banned from the industry.
The settlement resolves one of the highest-profile insider trading cases in recent years, involving a patriarch of the hedge fund industry whose institutional investors have largely deserted him since the claims surfaced.
The SEC alleged Mr Cooperman increased his longstanding position in Atlas Pipeline Partners after learning from a company executive that it was in talks to sell its Elk City operations.
After the lawsuit in September, Mr Cooperman said that the SEC was seeking $8m and a five-year ban. In Thursday’s settlement, he agreed to pay $4.9m comprised of disgorgement, penalties and interest.
After the settlement announcement, Mr Cooperman said in a statement: “I look forward to putting this matter behind me, with no restriction on my ability to invest and manage client assets, for much less than it would have cost to continue defending the case.”
Since the insider trading charges were announced, assets under management have dropped from $5.1bn before the lawsuit to $3.6bn as at April 30, according to a person familiar with Omega’s performance. Investors have redeemed over $2bn but the decline was offset by $600m in returns, this person said.
A majority of the fund is now Mr Cooperman’s family money. Outside capital accounts for $1.7bn, of which $200m is institutional accounts.* Mr Cooperman launched Omega in 1991 after a career at Goldman Sachs.
It is not clear whether the SEC’s reversal — it originally sought Mr Cooperman’s suspension from the industry — reflects the commission’s review of the merits of the lawsuit or a shift in tone under the Trump administration’s SEC.
Last year, the SEC banned another prominent hedge fund manager, Steven Cohen, from managing external money for two years, to resolve an SEC case alleging he failed to supervise traders who engaged in insider trading. Phil Falcone accepted a five-year ban to resolve claims he misused his hedge fund’s customer assets in 2013.
The Omega settlement imposes an independent consultant to monitor the hedge fund’s trading activity. “The resolution helps protect our markets from future risk of insider trading,” said Stephanie Avakian, the SEC’s acting director of enforcement.
The SEC’s case involved three phone conversations Mr Cooperman allegedly had with an executive at Atlas on July 7, 19 and 20, 2010 while the company was in talks to sell its Elk City facility. Atlas announced the $682m sale to Enbridge Energy Partners on July 27 and its stock rose 31 per cent.
The SEC alleged Omega made $4m in unrealised profits, but Mr Cooperman said the firm later lost money on its investment.
“During one of those conversations in which APL Executive 1 told Cooperman confidential information about the Elk City sale, Cooperman explicitly agreed that he could not and would not use the confidential information APL Executive 1 told him to trade APL securities,” according to the SEC complaint. After learning about the potential transaction, Mr Cooperman’s Omega funds began buying Atlas stock and options. After the deal was announced, Atlas stock rose 31 per cent.
The SEC also alleged after Omega was subpoenaed by the SEC and questioned about the trades, Mr Cooperman called the Atlas executive to receive an assurance that he did not receive confidential information about the sale “despite knowing this was not true”.
Mr Cooperman has maintained that he never agreed to keep the information confidential and his lawyers said in court filings that, if an agreement existed, the SEC has not alleged it was reached before he made the trades. To be found liable for securities fraud, regulators need to prove someone traded on inside information in violation of a duty to keep it confidential.
Last year Mr Cooperman said a criminal investigation by the US attorney’s office in New Jersey was on hold pending a Supreme Court ruling on a separate insider trading case. The court ruled in October and there has been no further update on the investigation.
* This article was amended from the original to correct the amount of outside capital still managed by Omega.