Leon Cooperman, apparently, isn’t going down though a fight.
On Wednesday morning, Cooperman and his sidestep comment Omega Advisors was charged with insider trade by a SEC. The SEC says Cooperman traded on info from an executive during Atlas Pipeline Partners that eventually sent a batch climbing 31%. Cooperman and his investors pocketed $4 million. The SEC wants that and indemnification back.
But Cooperman is distant from opening adult his bank account. He’s called a SEC’s charges misled and has pronounced he is going to quarrel them.
This afternoon, Coooperman sent a minute to his investors. In it, Cooperman says he is “highly disappointed” with a SEC’s charges. He says he’s been told by a Department of Justice that it had put his box opposite him on hold. He also creates some book recommendations.
“We have finished zero crude and definitely repudiate a Commission’s allegations,” Cooperman says in a letter.
Cooperman says he did get news about Atlas. But he pronounced that he and his analysts were large believers in a appetite association carrying invested some-more than $100 million in a batch before removing a news that a SEC is hinging a insider trade box on. Cooperman pronounced his organisation did buy some-more shares in a association after removing a insider info, though before it was strictly announced. But Cooperman says a additional purchases were tiny relations to a distance of a firm’s altogether position, usually $3.8 million, and that he continued to buy batch in a association even after a news became public. What’s more, Cooperman says he didn’t finish adult cashing out of any of those shares in to a year later, distant after a batch was relocating on an impact from a news he had gotten.
The SEC also says that Cooperman traded in out of income options that were clearly finished to advantage from a news Cooperman and his organisation had. But Cooperman says that fraudulent as well. He says a options trades were meant to beget income, and are partial of a firm’s unchanging strategy, not anything Omega was doing to distinction from a remarkable arise in a batch prices.
You can review Cooperman’s full minute to his investors below.
September 21, 2016
Dear Fellow Investor:
As we competence recall, we supportive we in Mar of final year that Omega Advisors, Inc. (“Omega”) had perceived subpoenas from a U.S. Attorney’s Office for a District of New Jersey (the “U.S. Attorney’s Office”) and a U.S. Securities and Exchange Commission (the “Commission”). Earlier this year, we supportive we that Omega and we had perceived a “Wells Notice” from a staff of a Commission regarding to a same summons we perceived from a Commission final March. We responded to a Wells Notice in essay and met with a Commission staff to explain since charges opposite possibly Omega or me would be totally unwarranted. Despite what we trust to be finish significant and authorised defenses, a Commission has filed a grave censure opposite both Omega and me, alleging violations of a sovereign holds laws. Separately, we have been suggested by a U.S. Attorney’s Office that it has not finished a review though has dynamic not to pursue charges for a time being tentative a U.S. Supreme Court’s preference in Salman v. United States.
Needless to say, we are rarely unhappy with a Commission’s preference to record charges, and we strongly remonstrate with a Commission that possibly a organisation or we have intent in any wrong conduct.
The Commission’s censure concerns trade in holds released by a association called Atlas Pipeline Partners, L.P. (“Atlas Pipeline” or “APL”), an oil and gas company. Specifically, a Commission has purported that Omega and we traded in Atlas Pipeline stock, holds and call options in Jul 2010 after presumably training from a association insider shortly formerly that a association was formulation to sell one of a plants (“Elk City”) during a finish of that month. The Commission has also purported that a company’s batch cost rose approximately 30% following a open proclamation of a sale on Jul 28, 2010. According to a Commission’s complaint, trade in Atlas Pipeline in allege of that proclamation resulted in a benefit of approximately $4 million formed on a boost in Atlas Pipeline’s batch and bond prices following a announcement.
We have finished zero crude and definitely repudiate a Commission’s allegations. As we wrote final year when we initial perceived a subpoenas, we have via my fifty-year career in a holds business resolutely believed in detailed, elemental research. As we explained then, that proceed has prolonged contemplated direct, face-to-face interactions with association management. Such exchanges of information with association government are appropriate, timeless in a industry, and even necessary. As a Wall Street Journal op-ed put it usually final year, “information is not a crime.” Although we don’t consider it would be prolific to state here a views on what we trust to be a severely misled bid by a authorities in these matters, we would impute anyone who is meddlesome to Three Felonies a Day: How a Feds Target a Innocent by Harvey A. Silverglate and Licensed to Lie: Exposing Corruption in a Department of Justice by Sidney Powell, both of that yield fascinating insights into a machinations of a country’s rapist probity system.
While we can't plead all a specifics of these matters as they are ongoing, we trust it is critical for us to yield we with some simple contribution concerning a Commission’s charges.
As noted, a Commission’s charges describe to a singular company, Atlas Pipeline, and regard trade during athree-week duration some-more than 6 years ago. Atlas Pipeline was one of several companies tranquil by a Cohen family, a series of whose members we had famous for many years. Omega initial invested in a association in Jun 2007 — some-more than 3 years before a events during emanate in a Commission’s censure — by a Private Investment in Public Equity (PIPE) transaction. (We had been investors in Atlas-related companies given 2002.) At that time, we acquired some-more than 1.9 million shares for about $44 per share, or some-more than $80 million value of APL shares. We invested in a association formed on a elemental research, minute analysis, and recommendation of a former Omega investment researcher who left a organisation several years ago.
We significantly increasing a firm’s position in Atlas Pipeline over a march of a subsequent several years, formed on a continued elemental research, minute analysis, and recommendation of a same investment analyst, adding some-more than dual million additional shares from 2007 by 2009, during prices trimming from a high of about $43 to a low of around $5.10 per share. Indeed, even as a company’s batch cost fell significantly during that time period, Omega hold — and continued adding to — a holdings, reflecting a certainty in a company’s long-term value, a faith that a batch was undervalued, and a support we consistently took from APL management’s open insistence, and a Street’s belief, that a association would repair a liquidity problems. In fact, by Jul 2010 — a time duration that is a concentration of a Commission’s charges — Omega had determined a position in a association of some-more than 4 million shares, during a cost of some-more than $150 million.
Significantly, a batch purchases by Omega cited in a Commission’s censure were finished for usually dual managed accounts — one of that was new to a organisation during a time — that were underweighted in Atlas Pipeline batch compared with Omega’s other managed accounts. Specifically, before to a Jul 13 purchases, these dual accounts had 0.9% and 0.0%, respectively, of their net item values invested in APL stock. By contrast, a other 7 accounts managed by Omega during that time had between 1.4% and 1.6% of their sold net item values invested in APL stock. As a ubiquitous matter, to a border that mixed accounts have almost a same investment mandate, we try to conduct them pari passu, theme to collateral availability, marketplace prices and identical factors.
Omega did not squeeze Atlas Pipeline shares in Jul 2010 for any of a Omega supports in that we had my possess collateral invested. Moreover, a shares that were purchased for dual of a firm’s clients in Jul 2010 represented an considerate investment for Omega. Specifically, from Jul 13, 2010 until Jul 19, 2010, Omega purchased a sum of 343,600 APL shares for these dual clients, during an normal cost of reduction than $11 per share, for a sum investment of $3.8 million. Omega’s $3.8 million investment in Atlas Pipeline in Jul 2010 represented reduction than 0.08% of Omega’s resources underneath government during a time. In addition, Omega already had purchased approximately $152 million in APL batch before to Jul 2010, so a additional investment of $3.8 million represented usually a 2.5% boost in Omega’s accumulative investment in Atlas Pipeline during a time.
Critically, following a proclamation on Jul 28, 2010 that Atlas Pipeline had sole a plant during issue, Omega sole no shares in a company. In fact, Omega sole positively no APL shares for some-more than one year after a announcement. Instead, we continued to build a position, shopping some-more than 100,000 additional shares of a company’s batch in Aug and Sep 2010, ensuing in land of some-more than 4 million shares. When we finally did sell some stock, we sole usually 6,100 shares in Aug 2011, and confirmed a net prolonged position — even as a batch cost fell into a singular digits — until we sole out of a position usually final year.
The Commission’s allegations are also formed on batch trades in my personal and deferred remuneration accounts, and on bond and options trades in those accounts and by Omega, though we have finish defenses to those allegations, too.
The allegations concerning my deferred remuneration comment describe to trades finished with a apportionment of a resources comprising my deferred remuneration from Omega Overseas Partners Ltd. (my “Deferred Compensation Account”). Like a accounts Omega managed, a Deferred Compensation Account owned Atlas Pipeline batch for years before to 2010, as we and several family members had privately given Jul 2007. As of Jul 2010, a Deferred Compensation Account and my personal (including related) accounts hold some-more than 1,000,000 APL shares. No purchases of APL batch were finished for any of my personal accounts in Jul 2010. The Deferred Compensation Account finished a singular squeeze of 61,700 APL shares on Jul 20, 2010, during an normal cost of $10.31 per share, or a sum cost of approximately $636,000. Significantly, like a accounts Omega managed, a Deferred Compensation Account did not find to distinction from a Jul 28 Elk City announcement. It did not sell any shares of Atlas Pipeline to a marketplace until Aug 2011, some-more than a year after that announcement. None of that trade settlement is unchanging with insider trading.
The allegations formed on trades in APL call options in Jul 2010 are equally unfounded. Between Feb and May 2010, Omega sole 11,230 APL call options for premiums totaling approximately $1,160,000. The options had strike prices of $15.00 and $17.50, and death dates of Aug and Nov 2010, respectively. Thus, Omega was offered to a purchasers of those call options a right to buy Atlas Pipeline batch before death during prices of $15.00 or $17.50. The holders of those call options would have a financial inducement to practice them if, before expiration, APL’s batch cost rose above a choice strike price.
That remained Omega’s position in APL call options during a start of Jul 2010. If Omega had finished zero offer with a Atlas Pipeline options position in Jul 2010, then, following a Elk City announcement, when APL’s batch cost rose from a Jul low of $9.16 to $16.22, a holders of a $15.00 call options presumably would have exercised them. At that point, Omega would have sole some of a Atlas Pipeline batch to a choice holders for a strike cost of $15.00 per share, thereby realizing (lawfully, and though holding any additional steps) some-more than 90% of APL’s batch cost following a Elk City announcement.
But Omega didn’t do that. Instead, in Jul 2010, as a cost of a Aug $15.00 options declined to as low as $0.05 per option, Omega purchased a accurate series of APL $15.00 call options it had sole progressing in a year, that equivalent a existent APL options position. As a outcome of flattening out a options position, Omega didn’t comprehend any benefit from a boost in Atlas Pipeline’s batch cost following a Elk City announcement. It is illogical, and defies common sense, that a SEC would move an insider trade box formed on that trade pattern.
Additionally, there was an eccentric mercantile reason for Omega to squeeze call options that July. Selling call options while prolonged a underlying batch (“writing a lonesome call”) is a common income-generating strategy, reaping a seller a reward perceived from a sale of a options. In Jul 2010, a $15.00 options that Omega had sole for $1.32 in Feb and Mar 2010 were trade for as small as $0.05, generally a lowest probable quoted cost for an exchange-traded option.
On Jul 7, 2010, a day after Atlas Pipeline’s batch fell to a lowest shutting cost of a year, Omega began purchasing those $15.00 call options during a cost of usually $0.05 per option. Between Jul 7 and Jul 13, Omega flattened out a position in a Aug $15.00 options for an normal cost of $0.07 per option. Thus, Omega was means to squash out a position while giving adult usually $0.07 (or 5%) of a $1.32 reward it had perceived per option.
Significantly, since a APL options purchases in Jul equivalent all of Omega’s progressing sales of a same options, Omega was never prolonged any Atlas Pipeline calls before to a Elk City announcement. If Omega had determined a prolonged position in APL call options during $0.05 rather than flattening out a position, it would have stood to make a estimable distinction from a boost in a batch cost following a announcement. Omega didn’t do that.
In short, like a investments in Atlas Pipeline stock, Omega’s Jul 2010 trade in APL options does not advise an try to distinction from inside information. The same is loyal of options purchases during that duration by my Deferred Compensation Account. Between Mar and early May 2010, a Deferred Compensation Account sole APL call options with strike prices of $15 and $17.50 and death dates of Aug and November, respectively. The sum reward perceived from a sale of those options was approximately $437,000. Beginning on Jul 7, 2010, a day after Atlas Pipeline’s batch reached a lowest shutting cost of a year, a Deferred Compensation Account began shopping behind a same call options it had sole progressing in a year in sequence to equivalent that brief position. Like Omega, a Deferred Compensation Account was not prolonged any APL call options during a time of a Elk City announcement.
The Commission’s allegations are also formed on trades in Atlas Pipeline holds in Jul 2010. As an initial matter, since a pricing of holds is generally not as supportive to corporate news as batch prices are, it is rarely doubtful that someone seeking to distinction from an proclamation would try do so in a bond market. And, as was a box with a investment in APL stock, Omega was invested in APL holds good before Jul 2010 and had already amassed a estimable prolonged position by then. Omega began shopping dual opposite fixed-rate Atlas Pipeline holds (bearing coupons of 8.75% and 8.125%, respectively) in Dec 2008 — a year and a half before a Elk City announcement.
Moreover, as it did with a equity investment in Atlas Pipeline, Omega sum to a APL bond position over time. By Jul 2010, Omega owned approximately $77 million standard value of APL holds during a sum cost of approximately $53 million. Omega usually modestly increasing that position in Jul 2010, purchasing no additional 8.75% holds and usually $3.5 million standard value of 8.125% holds during a cost of approximately $3.3 million. The firm’s investment in APL holds in Jul 2010 was reduction than 0.07% of Omega’s resources underneath government during a time (and, even sum with a APL equity investment in Jul 2010, was usually 0.14% of resources underneath management). Omega’s investment in APL holds in Jul 2010 also represented reduction than a 5% boost in Omega’s existent position. Thus, there is no justification that Omega was “loading up” on holds forward of an expected announcement, in an bid to take advantage of inside information.
Furthermore, on Jul 28, following a Elk City announcement, Omega sole usually $701,000 standard value of a APL bonds, or reduction than 1% of a sum APL bond position. Other than those bonds, Omega did not sell any of a $77 million standard value of APL holds until 4 months later, when it sole additional holds on Nov 29. Omega continued to say a net prolonged position in Atlas Pipeline holds for some-more than dual years following a Elk City announcement.
Nor is a APL bond trade in a Deferred Compensation Account or my personal accounts any some-more demonstrative of insider trading. we finished a singular squeeze of $50,000 standard value of APL holds on interest of my grandson on Jul 20 for about $47,000, and a Deferred Compensation Account finished a singular squeeze of $1,000,000 standard value of APL holds on Jul 13 for approximately $927,000. Significantly, conjunction comment sole any APL holds following a Jul 28 Elk City announcement. Indeed, there were no sales of APL holds in those accounts until Feb 2012, some-more than 18 months after a announcement.
It also bears plead that we was during a time a largest financier in Cobalt Capital, a sidestep comment run by my son, Wayne. In Jul 2010, Cobalt was brief APL stock. As such, Cobalt (and by extension, I) stood to remove income if APL’s batch cost rose. But, as my son is prepared to attest if need be, we didn’t share with him any information concerning a Elk City transaction or even know what position Cobalt had in APL holds during a time.
In short, nothing of a APL trade during emanate is demonstrative of someone perplexing to position themselves forward of an expected market-moving announcement, or to reap increase from inside information. Our approximately eight-yearinvestment in Atlas Pipeline was formed on elemental research, severe analysis, and discernment —not inside information. Unfortunately, as infrequently happens in a business, this sold investment incited out to be unsuccessful.
As we have formerly supportive you, we have hired dual of a many rarely reputable lawyers in a nation to paint us — Dan Kramer and Ted Wells of Paul, Weiss, Rifkind, Wharton Garrison LLP — both of whom are rarely gifted in such matters. Our warn will energetically urge us opposite a Commission’s charges.
And as we have formerly explained, while we are acquire to ask us any questions we competence have from time to time, we wish we will know that we can't plead a specifics of these matters while they are ongoing and therefore competence not always be means to yield we with a turn of fact that we competence enterprise and that we competence differently like to share with you.
We continue to be entirely committed to handling a clients’ income and delivering higher risk-adjustedreturns, and we continue to have full certainty that these matters will not impact a ability to continue to offer your best interests.
There will be a discussion call during 4:15 P.M. this afternoon to plead these matters.
Leon G. Cooperman
Chairman and Chief Executive Officer
Omega Advisors, Inc.