| Leon Cooperman, Omega Advisors (Bloomberg) |
Et tu, Leon Cooperman?
The Securities and Exchange Commission has officially charged Wall Street legend Cooperman and his firm, Omega Advisors, with insider trading, saying he “generated substantial illicit profits” by purchasing securities in Atlas Pipeline Partners (APL) before it announced the sale of a natural gas processing facility. The complaint basically says the hedge fund manager “used his status as one of APL’s largest shareholders” to obtain critical confidential details about the sale of this asset from an Atlas executive who thought the conversations were confidential. Omega wound up making $4 million on the stock.
The SEC also alleges that when Omega received a subpoena about its trading in the securities, Cooperman “contacted the executive and tried to fabricate a story to tell” if he were questioned about the trading activity.
“The executive was shocked and angered when he learned that Cooperman traded in advance of the public announcement,” the SEC adds. Cooperman was also charged with breaking federal securities laws by failing to timely report information regarding his stock holdings and trades more than 40 times.
Cooperman declined to comment on the charges, but in a letter sent to clients this morning and obtained by Alpha, Cooperman flatly denied the regulator’s allegations, asserting, “We strongly disagree with the Commission that either the firm or I have engaged in any unlawful conduct. We have done nothing improper and categorically deny the Commission’s allegations.”
Cooperman lays out, in nearly five pages, a detailed account of his trades in APL and why he disputes the charges. “Our counsel will vigorously defend us against the Commission’s charges,” he adds. CNBC reported that he turned down a settlement deal.
Cooperman also tells his investors in the letter that he was advised by the U.S. Attorney’s Office that it has not completed its investigation into the trades but has decided not to pursue charges for the time being, pending the U.S. Supreme Court’s decision in a key insider trading case, Salman v. United States.
Now, Cooperman is far from the first billionaire hedge fund manager to be accused of this kind of wrongdoing, or worse. And I’ve always felt that wealthy people who try to rig the system are among the greediest people, because they simply have no need of the extra money. Many of these people are arrogant, seemingly self-entitled narcissists. (Full disclosure: this judgment is based on having taken three credits of psychology courses in college.)
However, for some reason I am saddened to learn this news about Cooperman. Maybe it is because I have known him professionally for something like 33 years. Maybe it is because he always made himself accessible to me, in his charmingly gruff way.
But I think it is because the 73-year-old, 50-year Wall Street veteran always struck me as an old-school investor who just seemed to love researching, identifying, buying, selling and trading stocks. He exuded passion for the markets; trading stocks was his life. Period.
In the letter defending his actions and interactions with APL’s management, Cooperman explains: “I have throughout my fifty-year career in the securities business firmly believed in detailed, fundamental research...that approach has long contemplated direct, face-to-face interactions with company management. Such exchanges of information with company management are appropriate, well-established in the industry, and even necessary.”
Cooperman also embodies a classic old-school New York story. He was the first in his family to graduate college, having attended Hunter College, part of the City University of New York (CUNY), back when it was free and accessible to immigrant families. Cooperman then decided to go to dental school, a little-known part of his bio. But after eight days and a small sum spent on engraved equipment, he decided it wasn’t for him and dropped out to attend business school at Columbia University. His supportive parents told him only to make sure that whatever he did, he could support himself.
He did that and then some, eventually becoming a billionaire and a titan on Wall Street. Cooperman spent 25 years at Goldman Sachs, eventually becoming a general partner, and then launched Omega in 1991. When I did a major feature story on hedge fund succession planning several years ago, Cooperman made it very clear he had no plans to retire anytime soon.
Over the past few years, Omega’s flagship fund has struggled. The fund lost about 2 percent in 2014 and lost another 10 percent last year. It was losing money earlier this year but moved into positive territory in August.
However, assets now stand at $5.4 billion — a substantial proportion of which is Cooperman’s own money and that of other partners and employees. That’s down from $10.5 billion three years ago.
Cooperman also has been visibly shaken by the outflow of assets over the past year. But he has made it clear he is not planning to shut down. Now, it seems the SEC’s charges will, in effect, make that decision for him as he battles to retain his remaining clients.
It’s a sobering chapter in the saga of one of Wall Street’s most colorful characters. I first encountered Cooperman in 1983, when I did a cover story on him for the now-defunct Financial World magazine. A photographer had done a photo shoot at Cooperman’s New Jersey home, where Cooperman was lounging in his pool.
Not long after the photo shoot, Cooperman, a Goldman partner at the time, apparently had second thoughts about being photographed in such a personal setting and asked us to not run the photos. (He made no requests about anything we discussed or what I wrote). Before we published the story, I went down to Goldman’s headquarters, where the photographer was showing the photos to several of the firm’s luminaries. I specifically remember Robert Mnuchin, a member of Goldman’s management committee, smoking his trademark pipe, just looking at the photos and slowly shaking his head “No.”
They asked the editor if he would refrain from running the photos, and he obliged. Fun postscript: Several months later Institutional Investor did a short story on Cooperman and wound up running the pool photo, which apparently Cooperman and Goldman failed to buy. Oh well. No harm done.
Today’s news, however, may be different. For me, at least, it’s a sad day on Wall Street.
