Play fair or Play to win – that seems to be the question when it comes to business investments, hedge funds, and Wall Street. So here’s a question for you. If you learned of a pending benefit or devasting loss related to a company – investing in which could 
produce substantial gains – would you play fair or play to win? Your answer creates the foundation for your moral and ethics code.
It would appear that hedge fund billionaire Leon Cooperman and his firm Omega Advisors played to win and were recently charged with insider trading by the Securities and Exchange Commission.
In a civil complaint, the SEC alleges that Cooperman, 73, traded on non-public information in summer 2010, when he learned in several telephone conversations with a corporate executive at Atlas Pipeline Partners about the impending sale of its natural gas processing facility in Elk City, Oklahoma. The SEC, in essence, is saying that Cooperman says that instead of the idea of play fair or play to win – he just played to win.
The SEC states:
“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 Andrew J. Ceresney, Director of the SEC’s 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.”
Cooperman states:
“We have done nothing improper and categorically deny the Commission’s allegations. As I wrote last year when we first received the subpoenas, I have throughout my fifty-year career in the securities business firmly believed in detailed, fundamental research. As I explained then, 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. As a Wall Street Journal op-ed put it just last year, ‘information is not a crime.’”
It seems that Cooperman is saying I play to win by playing fair – I just do my homework.
Play fair or play to win
Cooperman’s hedge fund – Omega had been invested in Atlas Pipeline’s stock since 2007.
A Yahoo Finance report reveals the following:
The SEC said Cooperman learned of the Elk City deal during phone conversations with an unnamed executive at the company based in Pennsylvania. He spoke with that executive on the phone on July 7, 9, 20, and 27. In at least one of the conversations, Cooperman allegedly learned of the $650 million sale price, the SEC complaint said.
On July 7, the day of the first phone call, Cooperman and Omega purchased a total of 1,966 Atlas Pipeline call options with a $15 strike price, expiring August 21, 2010. Atlas Pipeline’s stock closed at $9.66 per share the day the options were purchased, the SEC notes.
He continued to purchase Atlas Pipeline between July 8 and July 19. On July 19, the SEC said that Cooperman spoke with the executive at Atlas Pipeline. After the call, he made an electronic calendar entry for July 27, 20010 at 10:30 a.m. with the title “APL Board Meeting.”
On July 20, Cooperman had another phone call with the Atlas Pipeline executive at 9:43 a.m. for approximately 7 minutes. At 9:50 a.m. he called an unnamed “Omega Consultant” where he revealed that he had learned about the Elk City sale for $650 million. That same day, Omega and Cooperman purchased 3,800 out-of-the-money call options with a $15 strike price, expiring November 20, 2010. The Cooperman Offshore Account bought 61,700 shares. Cooperman also bought $50,000 worth of Atlas Pipeline bonds for an account belonging to a family member.
On the evening of July 27, Cooperman spoke with the Atlas Pipeline executive who told him the board had approved the sale, the complaint said. Shortly after, he sent an email to a family member, who is also a hedge fund manager, that said, “Good news on APL… [t]hey sold their ELK City operation for $682mm which will enable them to pay off bank debt, de-risk company because keep whole contracts largely gone and fund their Laurel Mountain obligations. We think stock worth at least $15 in near term — for what that is worth.”
And the SEC wants what?
The SEC is only a regulatory agency is has no power to seek criminal prosecution. Therefore all the SEC can practically ask for is disgorgement of ill-gotten gains and perhaps the imposition of other penalties.
Play fair or play to win? What do the facts show vs what is said? It appears that there’s clearly an ethics issue and the SEC thinks they are on the winning side. To be clear, I am not a party to any person or organization mentioned here. What I do know is that actions in almost every case speak much louder than words. The SEC is looking at the actions of Mr. Cooperman and they appear quite damning! Play fair or play to win – think the SEC might have gotten this one right.
