Hedge fund icon Leon Cooperman and his firm, Omega Advisors, a registered investment adviser, agreed to resolve charges by the Securities and Exchange Commission without admitting or denying any allegations that they engaged in insider trading by paying US $5 million and agreeing to the imposition of other sanctions. Last September, the SEC charged that, in 2010, Mr. Cooperman obtained nonpublic information regarding divestiture plans of Atlas Pipeline Partners, L.P. (“APL”), a company in which he owned or controlled a substantial number of shares. Despite providing assurances to the APL executive who provided him the nonpublic information that he could not and would not trade based on it, he in fact so traded, claimed the SEC, and Omega Advisors and he profited. The SEC also charged that, over 40 times, Mr. Cooperman failed to timely report to it, as required, information about the securities of publicly traded companies that he beneficially owned. (Click here for information regarding the SEC’s initial complaint in the article “Hedge Fund Icon Sued by SEC for Alleged Insider Trading” in the September 25, 2016 edition of Bridging the Week.) Among the other sanctions agreed to by the defendants were they must (1) retain an onsite independent compliance consultant through 2022 to access electronic communications and review trading; (2) make monthly certifications that they did not trade on inside information; and (3) outsource their required beneficial ownership filings.
Legal Weeds: Recently, the Commodity Futures Trading Commission commenced and settled two enforcement actions, sounding in the securities concept of insider trading, but relying on its own legal basis – the relatively new provision of law and CFTC rule that prohibits employment of a manipulative or deceptive device or contrivance in connection with futures or swaps trading. (Click here to access Commodity Exchange Act Section 6(c)(1), US Code § 9(1), and here to access CFTC Rule 180.1.)
Most recently, in September 2016, the CFTC brought and settled charges against Jon Ruggles, a former trader for Delta Airlines, for trading accounts in his wife’s name based on his knowledge of trades he anticipated placing for his employer. The CFTC claimed that this constituted trading on illicitly misappropriated information– a type of prohibited insider trading.
To resolve the CFTC’s charges, Mr. Ruggles agreed to pay a fine of US $1.75 million; disgorge all trading profits on a specified schedule over 42 months; and never again trade on a market overseen by the CFTC. (Click here for additional information in the article “Ex-Airline Employee Sued by CFTC for Insider Trading of Futures Based on Misappropriated Information" in the October 2, 2016 edition of Bridging the Week.)
In its first action sounding in insider trading, the CFTC alleged in 2015 that Arya Motazedi, a gasoline trader for an unnamed large, publicly traded corporation, similarly misappropriated trading information of his employer for his own benefit. (Click here for information regarding the CFTC’s enforcement action against Mr. Motazedi in the article “CFTC Brings First Insider Trading-Type Enforcement Action Based on New Anti-Manipulation Authority” in the December 6, 2015 edition of Bridging the Week.)
The CFTC has used its manipulative or deceptive device or contrivance authority in a wide range of enforcement actions stemming from its first use in the JP Morgan “London Whale” episode to subsequent allegations of illegal off-exchange metals transactions, claims of more traditional manipulation of wheat, allegations of spoofing and insider trading. The CFTC has made clear it sees its new authority “as a broad, catch-all provision reaching fraud in all its forms – that is, intentional or reckless conduct that deceives or defrauds market participants” and will use it whenever possible – including for allegations of trading on the basis of material nonpublic information obtained as a result of a breach of a duty of confidentiality, or through fraud or deception. (Click here to access the CFTC’s views on the reach its authority under CFTC Rule 180.1 in the Federal Register adopting release for this provision.)