At this year's SALT conference in Las Vegas, founder LeonCooperman toldattendees that the hedge fund business model was "under assault" asit reckoned with falling returns and rising redemptions.
Now he and his company are facing a more pointed attack:insider trading charges brought by the SEC.
The regulator claimed that, in July 2010, Cooperman learnedof Atlas Pipeline Partners' plans to sell a natural gas processing facility,then bought thousands of the company's securities before the facility's salewas made public. When Atlas did announce the news, its shares soared more 31%,according to the regulator's complaint.
The SEC is seeking to bar Cooperman from working in thesecurities industry, as well as levy unspecified civil penalties against himand Omega Advisors.
Cooperman and other celebrity investors were quick to cryfoul. In an investor letter sent hours after the SEC charges were released,Cooperman wrote that he and the company "categorically deny" theallegations. He pointed to the fact that Omega did not sell any Atlas sharesfollowing the company's facility sale announcement and subsequent share priceincrease, and even bought more stock over the next two months.
On Twitter, billionaire investor Mark Cuban called the SEC'sactions "awitch hunt." Cuban himself was embroiled in a years-longinsider-trading case, when the commission alleged he traded on nonpublicinformation to avoid losing money when a company he held moved to dilute itsshares. A federal district court dismissed the charges in 2009, and a jurysided with Cuban after the SEC appealed.
Every SEC complaint "reads like they have a writtenconfession. Read mine. It was fiction," Cuban tweeted.
Wilbur Ross, another famed money manager, said he was"shocked" at the SEC's actions during a Bloomberg interview."I've known Leon for a very, very long time, and he's not some grubby,hedgie guy paying people off for inside information," he said."That's just not the Leon Cooperman I've known for decades."
In a blog post for Institutional Investor's Alpha, StephenTaub wrote that the investigation casts a pall over Cooperman's image as anold-school investor who "just seemed to love researching, identifying,buying, selling and trading stocks." Cooperman was the first in his familyto go to college, Taub wrote. "For me, at least, it's a sad day on WallStreet," he added.
The SEC complaint also revealed that Cooperman's son, whoruns Cobalt Capital ManagementInc. and also held some Atlas shares, had noticed some suspicioustrading in the company's options before the announcement that sent its sharesup. The younger Cooperman wrote to an Atlas executive demanding to know if aleak had occurred. He also said he may go to the SEC himself as a whistleblower— unaware that the trades in question were conducted by his father's hedgefund.
Meanwhile, Leon Cooperman had written to another familymember to say that a young member of his family should be "pleased toknow" that an Atlas bond purchased for him or her had risen in value afterthe sale, according to the SEC complaint.
"As a family drama sweeping up three generations ofCoopermans, this is the most riveting insider trading case since the lastinsider trading case we discussed," Bloomberg View's Matt Levinedeadpanned in a column,referring to a 2015 case involving a father-and-son trading team who usedgolfing terms tocommunicate insider information.
Levine also noted that the case's specifics don't quite meetwhat has become the courts' definition of insider trading after a pair of hedgefund managers had their convictions overturned in 2014. When an appeals court sided withformer Diamondback CapitalManagement LLC portfolio manager Todd Newman and co-founder AnthonyChiasson, it ruled that the tipper, in addition to the recipient of insideinformation, must also receive some kind of benefit.
In this situation, the SEC's case is that the executive toldCooperman about the sale and trusted him not to make any trades based on thatinformation, Levine wrote. If Cooperman did say he agreed to not trade, then hebroke a duty of trust to the Atlas executive — which could also be legitimate,though less common, grounds for insider trading.