A hedge fund manager and his advisory firm have agreed to settle insider trading charges and reporting violations for nearly $5 million. According to the SEC, the parties also agreed to engage an independent compliance consultant to perform onsite trade monitoring and to outsource required beneficial ownerships filings to a law firm while conducting additional training on and reviews of reporting policies and procedures. The settlement follows a ruling in favor of the SEC finding that liability under the misappropriation theory of insider trading may be premised on a post-disclosure agreement.
If approved by the court, the settlement will protect against future risks of insider trading while requiring significant fines for the misconduct, said Acting Enforcement Director Stephanie Avakian.
Alleged misconduct. As of late 2009, hedge fund manager Leon Cooperman was the beneficial owner of more than 9 percent of the common stock of Atlas Pipeline Partners and had developed close relationships with the company’s senior executives. According to the SEC, an unnamed executive told Cooperman that the company was in the process of negotiating the sale of one of its operating facilities, which was a substantial asset. This executive believed that Cooperman had an obligation not to use this confidential information, and, moreover, Cooperman explicitly agreed that he would not do so. Following his first conversation with the executive, however, Cooperman and his advisory firm, Omega Advisors, Inc., began buying Atlas securities. When the sale was announced, Atlas’ stock price rose 31 percent. The trades generated over $4 million in profits.
In September 2016, the SEC charged Cooperman and Omega with insider trading and repeated violations of laws requiring Cooperman to report beneficial ownership of securities of more than 5 or 10 percent. He failed to timely file these reports over 40 times with respect to eight different issuers, the Commission alleged.
A Pennsylvania federal district court rejected Cooperman’s argument that the complaint was fatally flawed because it was silent as to whether the agreement not to trade occurred before or after the disclosure of information. According to the court, the misappropriation theory of insider trading does not require an agreement to precede the disclosure of confidential information. To hold otherwise would be to legalize insider trading "by means of sequencing," the court stated.
Settlement terms. To settle the matter, Cooperman and Omega agreed to pay almost $2.2 million in disgorgement and prejudgment interest and a penalty of over $1.75 million for the insider trading violation. Cooperman also consented to pay a $1 million penalty for the beneficial ownership reporting violations. To guard against insider trading, the parties must retain an onsite independent compliance consultant until 2022 to review communications and trading records and to recommend improvements and conduct training. They will also be required to make monthly certifications that they were not aware of material, nonpublic information before any securities trades and to outsource required beneficial ownerships filings in conjunction with training and annual reviews of Omega’s reporting policies and procedures.
Companies: Omega Advisors, Inc.
MainStory: TopStory Enforcement FraudManipulation PennsylvaniaNews
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