Leon Cooperman charged with insider trading by SEC

[Travis Wiedower]

Don,

 

You took my quip way more seriously than I intended. I was just laughing at the image of some billionaire pouting to Obama about one of his tax loopholes being closed (#billionaireproblems). I don't know how you can think billionaires don't receive praise for their successes though. Buffett, Munger, Page and Brin, Zuckerberg, Gates, Jobs, Cuban--there are a lot of billionaires that are almost universally praised. I'm guessing most of the ones that get shit on (Trump) deserve it.

[Guest roark33]

Two points:

 

1. Cooperman made his living with this sort of behavior.  I bet you could plot a line in the sand after Reg FD when his returns started to decline.

 

2. The technical definition of insider trading implies both a fiduciary duty and a quid pro quo (I am simplifying).  Leon did not pay for this information, nor was there a written "duty", i.e confidentiality agreement or agreement not to trade on the information. 

 

In other words, if you are talking with an exec (whom you don't pay for this information) and he spouts off material non-public information without getting you to sign a confidentiality agreement in advance, then you are legally allowed to trade on that information.  This is Leon's argument. 

 

In this situation, the executive has violated Reg FD and you have done nothing wrong.  Obviously, the executive will claim you "agreed verbally" to not trade on that information, since if the executive didn't get that agreement from you, he would be in violation of Reg FD. 

 

This is probably "technically" a win for Leon, but boy, oh boy, is it scummy.  Additionally, the rest of the complaint regarding trading in certain securities without disclosing his trades in violations of various 13G and 13D disclosure rules is one-sided.  Leon is guilty.  In his letter to his investors today, he didn't even dispute that topic. 

 

 

[Foreign Tuffett]

Two points:

 

1. Cooperman made his living with this sort of behavior.  I bet you could plot a line in the sand after Reg FD when his returns started to decline.

 

2. The technical definition of insider trading implies both a fiduciary duty and a quid pro quo (I am simplifying).  Leon did not pay for this information, nor was there a written "duty", i.e confidentiality agreement or agreement not to trade on the information. 

 

In other words, if you are talking with an exec (whom you don't pay for this information) and he spouts off material non-public information without getting you to sign a confidentiality agreement in advance, then you are legally allowed to trade on that information.  This is Leon's argument. 

 

In this situation, the executive has violated Reg FD and you have done nothing wrong.  Obviously, the executive will claim you "agreed verbally" to not trade on that information, since if the executive didn't get that agreement from you, he would be in violation of Reg FD. 

 

This is probably "technically" a win for Leon, but boy, oh boy, is it scummy.  Additionally, the rest of the complaint regarding trading in certain securities without disclosing his trades in violations of various 13G and 13D disclosure rules is one-sided.  Leon is guilty.  In his letter to his investors today, he didn't even dispute that topic.

 

Great post. I strongly suspect your point #1 is dead on. Given how much insider trading seems to still go on, trading on material nonpublic information must have been very, very common before insider trading laws were tightened.

[DonFanucci]

Two points:

 

1. Cooperman made his living with this sort of behavior.  I bet you could plot a line in the sand after Reg FD when his returns started to decline.

 

Evidence?

[smj]

Cooperman response.......

 

http://fortune.com/2016/09/21/leon-cooperman-letter-insider-trading/

[cmlber]

2. The technical definition of insider trading implies both a fiduciary duty and a quid pro quo (I am simplifying).  Leon did not pay for this information, nor was there a written "duty", i.e confidentiality agreement or agreement not to trade on the information. 

 

In other words, if you are talking with an exec (whom you don't pay for this information) and he spouts off material non-public information without getting you to sign a confidentiality agreement in advance, then you are legally allowed to trade on that information.  This is Leon's argument. 

 

In this situation, the executive has violated Reg FD and you have done nothing wrong. 

 

99.999% sure this is incorrect.  The standard is material, non public information obtained from somebody that had a duty not to disclose. 

 

You can't ask the CFO of a company what earnings will be next quarter then trade on it and say I never agreed not to trade on it.

[Guest cherzeca]

Two points:

 

1. Cooperman made his living with this sort of behavior.  I bet you could plot a line in the sand after Reg FD when his returns started to decline.

 

2. The technical definition of insider trading implies both a fiduciary duty and a quid pro quo (I am simplifying).  Leon did not pay for this information, nor was there a written "duty", i.e confidentiality agreement or agreement not to trade on the information. 

 

In other words, if you are talking with an exec (whom you don't pay for this information) and he spouts off material non-public information without getting you to sign a confidentiality agreement in advance, then you are legally allowed to trade on that information.  This is Leon's argument. 

 

In this situation, the executive has violated Reg FD and you have done nothing wrong.  Obviously, the executive will claim you "agreed verbally" to not trade on that information, since if the executive didn't get that agreement from you, he would be in violation of Reg FD. 

 

This is probably "technically" a win for Leon, but boy, oh boy, is it scummy.  Additionally, the rest of the complaint regarding trading in certain securities without disclosing his trades in violations of various 13G and 13D disclosure rules is one-sided.  Leon is guilty.  In his letter to his investors today, he didn't even dispute that topic.

 

well stated.  after the recent 2nd Cir opinion, this may be the result....which is why SEC is taking this case to court...because this is just the fact pattern SEC wants to clamp down on, and i think you will see SEC try to take it up to SCOTUS

[Guest]

I think they should hit people who are guilty of trading on insider trading 10-100x the amount profited. I'm under the assumption now that it's amount profited plus some fee.

[DonFanucci]

2. The technical definition of insider trading implies both a fiduciary duty and a quid pro quo (I am simplifying).  Leon did not pay for this information, nor was there a written "duty", i.e confidentiality agreement or agreement not to trade on the information. 

 

In other words, if you are talking with an exec (whom you don't pay for this information) and he spouts off material non-public information without getting you to sign a confidentiality agreement in advance, then you are legally allowed to trade on that information.  This is Leon's argument. 

 

In this situation, the executive has violated Reg FD and you have done nothing wrong. 

 

99.999% sure this is incorrect.  The standard is material, non public information obtained from somebody that had a duty not to disclose. 

 

You can't ask the CFO of a company what earnings will be next quarter then trade on it and say I never agreed not to trade on it.

 

Is that even Cooperman's argument?? It's not his defense at all in the response he sent to his investors (https://www.scribd.com/document/324904447/Omega-Advisors-Inc-Letter-to-Investors-9-21-16#fullscreen&from_embed), so where is Roark getting that from? Roark also accused Cooperman of making his career on insider information. We still await the evidence for that accusation.

[maybe4less]

I think Matt Levine's article gives a good summary of the legal arguments: https://www.bloomberg.com/view/articles/2016-09-21/one-cooperman-thought-another-s-trades-were-pretty-fishy

 

(Disclaimer: I am not a lawyer)

[rb]

2. The technical definition of insider trading implies both a fiduciary duty and a quid pro quo (I am simplifying).  Leon did not pay for this information, nor was there a written "duty", i.e confidentiality agreement or agreement not to trade on the information. 

 

In other words, if you are talking with an exec (whom you don't pay for this information) and he spouts off material non-public information without getting you to sign a confidentiality agreement in advance, then you are legally allowed to trade on that information.  This is Leon's argument. 

 

In this situation, the executive has violated Reg FD and you have done nothing wrong. 

 

99.999% sure this is incorrect.  The standard is material, non public information obtained from somebody that had a duty not to disclose. 

 

You can't ask the CFO of a company what earnings will be next quarter then trade on it and say I never agreed not to trade on it.

Yea, roark33 definition is incorrect. It is insider trading when u are in possession of material non public information period. It doesn't matter how you came into its possession of what you agreed/didn't agree to. The moment you come into possession of information that would reasonably influence markets and it's hasn't been disseminated you need to stop trading in the name. 

[KJP]

 

Yea, roark33 definition is incorrect. It is insider trading when u are in possession of material non public information period. It doesn't matter how you came into its possession of what you agreed/didn't agree to. The moment you come into possession of information that would reasonably influence markets and it's hasn't been disseminated you need to stop trading in the name.

 

This is not correct.  See Chiarella v. United States, 445 U.S. 222 (1980); United States v. O'Hagan, 521 U.S. 642 (1997).  If you have authority for the proposition that a breach of duty and personal benefit (the quid pro quo Roark referred to) are not required, I'd be interested to see it.

 

EDIT:  I should mention that what you describe is the prudent way to act, regardless of what the technical nuances of insider trading law may be.

[LC]

If I'm walking down the street and I hear some dude scream "I'm the CEO of Chipotle and there's e-coli everywhere!", if I go and short that stock, I am legally allowed to do so.

[rb]

I'll take a stab and say that if he's yelling up and down the street it would be considered public information. Whether it meets reg FD that's the CEO's problem. Though I would assume that if he's yelling up and down the street he's got bigger problems than reg FD.

[ccplz]

Two points:

 

1. Cooperman made his living with this sort of behavior.  I bet you could plot a line in the sand after Reg FD when his returns started to decline.

 

2. The technical definition of insider trading implies both a fiduciary duty and a quid pro quo (I am simplifying).  Leon did not pay for this information, nor was there a written "duty", i.e confidentiality agreement or agreement not to trade on the information. 

 

In other words, if you are talking with an exec (whom you don't pay for this information) and he spouts off material non-public information without getting you to sign a confidentiality agreement in advance, then you are legally allowed to trade on that information.  This is Leon's argument. 

 

In this situation, the executive has violated Reg FD and you have done nothing wrong.  Obviously, the executive will claim you "agreed verbally" to not trade on that information, since if the executive didn't get that agreement from you, he would be in violation of Reg FD. 

 

This is probably "technically" a win for Leon, but boy, oh boy, is it scummy.  Additionally, the rest of the complaint regarding trading in certain securities without disclosing his trades in violations of various 13G and 13D disclosure rules is one-sided.  Leon is guilty.  In his letter to his investors today, he didn't even dispute that topic.

 

This is 100% incorrect.

[Tim Eriksen]

Whoever advised Cooperman on his response should be fired.  It was basically "It was not insider trading and besides I only did it in a few accounts, sure one was mine, but it was offset by a short position in my son's hedge fund (which I was unaware of but that doesn't matter), we didn't sell for nearly a year, and the rest of the buying was covering a short position (i.e. buying back covered calls) and that is not profiting.     

[Guest cherzeca]

Insider trading should be legal. These witch hunts need to end.

 

i think insider trading should be legal...and management should be limited in their cash comp and options.  that way, we could watch their trades and act more efficiently

[Tim Eriksen]

Insider trading should be legal. These witch hunts need to end.

 

Why would it be good for society or markets to allow someone to pay a manager to give him inside information?   

[rb]

Insider trading should be legal. These witch hunts need to end.

 

Why would it be good for society or markets to allow someone to pay a manager to give him inside information? 

Tim, the poster is either insane or just trolling the thread. Either way, it's best not to feed him.

[Guest roark33]

2. The technical definition of insider trading implies both a fiduciary duty and a quid pro quo (I am simplifying).  Leon did not pay for this information, nor was there a written "duty", i.e confidentiality agreement or agreement not to trade on the information. 

 

In other words, if you are talking with an exec (whom you don't pay for this information) and he spouts off material non-public information without getting you to sign a confidentiality agreement in advance, then you are legally allowed to trade on that information.  This is Leon's argument. 

 

In this situation, the executive has violated Reg FD and you have done nothing wrong. 

 

 

 

99.999% sure this is incorrect.  The standard is material, non public information obtained from somebody that had a duty not to disclose. 

 

You can't ask the CFO of a company what earnings will be next quarter then trade on it and say I never agreed not to trade on it.

 

http://mobile.reuters.com/article/idUSKCN11S2RQ

 

I know it sounds completely illogical, but that is basically the law of the land right now.  A few cases are making their way to the Supreme Court (one will be there next term) that should shed some more light.  But this "technically" wasn't insider trading. 

[whiterose]

Furthermore, insider trading is a victimless crime. The people the "criminal" bought the shares from were going to sell that day anyway regardless of whether the "criminal" had access to material information or not. So who is being damaged by insider trading? No one, so far as I can tell.

 

I disagree. In your example the seller without the material information would be harmed, because he sold at a discount to the potential "true" price once the news were out and known to all investors. Just like buying a used car, where the seller knows of some (hidden) defects and the buyer overpays therefore. You can't argue the buyer had bought it anyway on that day for that price.

[DonFanucci]

Furthermore, insider trading is a victimless crime. The people the "criminal" bought the shares from were going to sell that day anyway regardless of whether the "criminal" had access to material information or not. So who is being damaged by insider trading? No one, so far as I can tell.

 

I disagree. In your example the seller without the material information would be harmed, because he sold at a discount to the potential "true" price once the news were out and known to all investors. Just like buying a used car, where the seller knows of some (hidden) defects and the buyer overpays therefore. You can't argue the buyer had bought it anyway on that day for that price.

 

I agree with Scott 100%

 

In the case of buying a car, you are allowed to ask the seller questions about the vehicle. If they lie to you, that's fraud and they should be prosecuted. If they say, "I'm not going to answer", and you still purchase it- then you are responsible for the outcome of the (silly) risk you took. In the case of a new car, you don't need to ask questions because the product is presented to you as a new, working car. If they deliver otherwise, you should have a legal right to reparation.  For a stock, the seller isn't representing anything to you other than "you will own this stock certificate which is legal ownership in this corporation". You can ask the seller questions if you'd like (they probably won't say a thing), or you can just click a button on your brokerage account. The essential issue is whether you are getting what was represented to you (with a clear distinction between fact and opinion). If you're not, it's fraud. If you look in your brokerage account and you received Monopoly cards for an interest in Atlantic Avenue, you have been defrauded. A stock promoter who goes around selling his penny stock shares in a bankrupt company to the same people to whom he promoted it as solvent, he should be prosecuted. A regular stock trade, however, is nothing like that because nothing about the company is represented to you. Caveat emptor.

 

If there are companies that routinely give inside information to select people then their equity will rightfully suffer a discount. It's in the company's own best interest to control the information, which means having people sign legal agreements etc. The information has value and that value is the property of the company to use and dispose of like every other piece of the company's property. If an investor steals that information through espionage and appropriates the value to themselves, that should be illegal for the reasons theft is illegal. For example, lawyers who steal information on deals from the company's network and sell it for cash should be prosecuted for theft- not for insider trading. In the Cooperman situation, you have an executive giving information to an investor doing deep due diligence, who then makes minor trades for reasons unrelated to that specific information. It is crazy to bring legal action against him and no one has been wronged.

[Hielko]

Insider trading should be legal. These witch hunts need to end.

 

Why would it be good for society or markets to allow someone to pay a manager to give him inside information? 

 

Allowing insider trading is a great way to help markets move closer to strong form efficiency, by helping stocks price-in undisclosed, pertinent information that impacts the value of the securities. Because of this, as prices are bid up by those with access to this information, existing shareholders of the company have an opportunity to cash out at prices that reflect the undisclosed event that is either in the process of happening or that has already happened.

 

Those who are buying in are not harmed by this; the event (buyout, for example) will still happen and their investment will be money good. They will just no longer capture the arbitrage between the perceived value of the company without the event and the true value of the company with the event; it will instead be captured by those who owned shares when the event actually happened. In the case that the event is negative, those buying in are protected on the downside just as they're capped on the upside.

 

Furthermore, insider trading is a victimless crime. The people the "criminal" bought the shares from were going to sell that day anyway regardless of whether the "criminal" had access to material information or not. So who is being damaged by insider trading? No one, so far as I can tell.

No, if trading on insider information is legal most market participants without access to inside information would withdraw from the market or request a higher risk premium (to compensate for the risk of trading against more informed market participants). The effect would be lower liquidity and a probably significantly higher cost of capital for all public firms, and as a result the whole economy would suffer.

[oddballstocks]

Don,

 

Per your car example, cars are more similar to public companies than not.  Everything about the car that a sales person talks about is public.  This is known information that everyone has access to.  We all can look at this information and make an informed decision.

 

The inside information could be the source code in the car's computer or machine specs about how the car is built.  Maybe these things are important, but maybe they're not.  What you're saying is that 100% of everything should be open.  I can go to Toyota and demand the source code for the chips that control the radio and they should give them to me.  If I find a bug that could cause a crash and others never ask for the source code they deserve to crash because they never asked.  It's a fallacy in my view.

 

I've worked at public companies, private companies, and I own my own company.  Outside investors want everything, they want ALL the information with zero operational risk.  The reason inside information is 'inside' is because it's so much more powerful.  In public companies even the secretaries know more than the best informed investors.  That's why there are rules around trading.  Insiders are so much better informed it's almost crazy.  Outsiders want this info.  The problem is how do you know an outsider is just an investor (who's contributing nothing to the company, just profiting from your work) or a competitor trying to steal information?  In business there is a lot that is secret, and that's normal.  I routinely sign NDA's to work with clients and other companies.  Once an agreement is in place information can be shared.  I think an NDA is very appropriate, some of the information that's crossed my screen is extremely sensitive.  This is information that most employees at a company have access to, but it should not be public.

[Guest cherzeca]

2. The technical definition of insider trading implies both a fiduciary duty and a quid pro quo (I am simplifying).  Leon did not pay for this information, nor was there a written "duty", i.e confidentiality agreement or agreement not to trade on the information. 

 

In other words, if you are talking with an exec (whom you don't pay for this information) and he spouts off material non-public information without getting you to sign a confidentiality agreement in advance, then you are legally allowed to trade on that information.  This is Leon's argument. 

 

In this situation, the executive has violated Reg FD and you have done nothing wrong. 

 

 

 

99.999% sure this is incorrect.  The standard is material, non public information obtained from somebody that had a duty not to disclose. 

 

You can't ask the CFO of a company what earnings will be next quarter then trade on it and say I never agreed not to trade on it.

 

http://mobile.reuters.com/article/idUSKCN11S2RQ

 

I know it sounds completely illogical, but that is basically the law of the land right now.  A few cases are making their way to the Supreme Court (one will be there next term) that should shed some more light.  But this "technically" wasn't insider trading.

 

thinking about this, didnt insider obtain a benefit by currying favor with cooperman.  admonishing not to trade doesnt absolve when tippee trades...so there is a classic breach of fid duty/nonpublic material info