The U.S. Securities and Exchange Commission (SEC) charged billionaire Leon Cooperman and his hedge fund, Omega Advisors Inc., with insider trading on Wednesday, alleging that they illegally profited from the sale of a natural gas processing facility in Oklahoma in 2010 and then tried to cover it up.
In a 34-page complaint, the SEC alleged that in July 2010, Cooperman "generated significant illegal profits" when he traded in the securities of Atlas Pipeline Partners LP (APL). The trades were based on inside information from an unnamed, senior APL executive. According to the SEC, the trades boosted Cooperman and Omega to become one of APL's largest shareholders.
During the summer of 2010, APL sold its Elk City Gathering and Processing System (ECOP) to a unit of Enbridge Energy Partners LP for $682 million (see Daily GPI, July 29, 2010). The SEC alleged that Cooperman used his clout as a major APL shareholder to gain access to the same unnamed APL executive, who shared confidential information about the upcoming Elk City sale.
According to the SEC, the executive "believed Cooperman would maintain the information in confidence and not trade on it," adding that he explicitly promised not to use the information for trades. But federal regulators allege Cooperman reneged on the promise, and that he and Omega acquired APL securities in advance of the public announcement of the Elk City sale.
SEC said APL's stock price jumped 31.3% -- from $12.35 to $16.22/share -- on July 28, 2010, the day the sale was announced.
The complaint states that about 17 months after the Elk City sale, Omega received a subpoena regarding trading in APL securities. The SEC alleged that Cooperman contacted the APL executive "and attempted to fabricate a story in case [they] were questioned about this trading."
Although the name of the APL executive was not disclosed, the complaint identified him as an officer and director for the company at the time of the Elk City sale, and said he worked out of APL's office in Philadelphia.
"We allege that hedge fund manager Cooperman, who as a large APL shareholder obtained access to confidential corporate information, abused that access by trading on this information," said SEC’s Andrew Ceresney, director of the Division of Enforcement. "By doing so, he allegedly undermined the public confidence in the securities markets and took advantage of other investors who did not have this information."
The SEC also charged Cooperman with failing to report in a timely fashion information about holdings and transactions in securities of publicly traded companies that he beneficially owned, alleging that he violated federal securities laws more than 40 times.
In its complaint, the SEC said Cooperman reported that he owned more than 9% of APL's common stock at the end of 2009, and that the stock was worth about $46 million. He allegedly sold millions of dollars of APL stock and reduced his stake in the company during the first half of 2010, and reportedly told an unnamed Omega consultant that APL was a "sh---y business" on July 7, 2010.
But later that day, after allegedly speaking to the APL executive on the phone for about six minutes, Cooperman and Omega began purchasing securities in APL. The purchases allegedly continued through July 27, 2010, the day before the Elk City sale was announced.
The complaint adds that Cooperman allegedly contacted another, unnamed APL executive on July 22, 2010 and asked about the upcoming sale. The second executive "was surprised that Cooperman knew about the Elk City sale, given that APL had taken substantial steps to keep the transaction confidential."
Cooperman also allegedly sent an email on July 27, 2010 to an unnamed family member, who was also a hedge fund manager, about the pending sale. The family member then forwarded the email to a colleague, who replied that the deal seemed "fishy." The family member then responded that "somebody should investigate that."
According to the SEC, the first unnamed APL executive "was shocked and angered" when he learned that Cooperman had traded in APL securities before the Elk City sale was announced to the public, and that Cooperman allegedly contacted him in late 2011 or early 2012. He said he "believed Cooperman was attempting to fabricate a story in case the two were questioned about their conversations regarding Elk City."
The SEC said it subpoenaed Cooperman about the APL trades, but he invoked his Fifth Amendment privilege against self-incrimination.
Cooperman could not be reached for comment by various media outlets on Wednesday, but two attorneys representing him told NGI that the charges were "entirely baseless."
"Mr. Cooperman acted appropriately at all times and did nothing wrong," said attorneys Ted Wells and Daniel Kramer of New York-based firm Paul, Weiss, Rifkind, Wharton & Garrison LLP. "We intend to vigorously defend against the charges and will not allow the SEC to tarnish the legacy Mr. Cooperman has built over the course of a legendary career spanning five decades."
The complaint was filed in Philadelphia in U.S. District Court for the Eastern District of Pennsylvania.
The ECOP system included 800 miles of natural gas gathering pipeline, a hydrogen sulfide treating plant, and three cryogenic processing plants, with total capacity of 370 MMcf/d and a combined natural gas liquids production of 20,000 b/d.
APL was acquired by Targa Resources Partners LP as part of a $7.7 billion deal in February 2015 (see Shale Daily, Oct. 14, 2014).