Do Wealthier Hedge Fund CEOs like Leon Cooperman Get Away with Insider Trading?

Posted on 11/05/2020

Mychal Kendricks, a Seattle Seahawks free agent linebacker, was charged in August 2018 with insider trading on allegedly making US$ 1.2 million in investments in 2014. Kendricks pleaded guilty to his charges on September 6, 2018, and faces possible penalties of up to 25 years in prison, but he could end up getting 30 to 37 months in prison, according to local journalists.

Should professional fund managers be held to a higher standard when it comes to insider trading versus people not managing money? Showtime has a show called Billions which highlights hedge funds, government prosecutors, and the dance that comes along with it.

Leon G. Cooperman

On the other hand, large hedge funds often caught with insider trading are often able to settle with government prosecutors. For example, hedge fund billionaire Leon Cooperman ended up shuttering his hedge fund and converting it to a family office after a lengthy SEC investigation. Cooperman ran Omega Advisors, a hedge fund whose limited partners included large institutional investors. The former Goldman Sachs partner and holder of the CFA (Chartered Financial Analyst since 1972) designation, Cooperman, had at one-time managed around US$ 10 billion under Omega Advisors.

The SEC had leveled insider trading charges against Cooperman in September 2016 for his trades in Atlas Pipeline during the summer of 2010. He also faced related parallel criminal charges and asserted his Fifth Amendment right against self-incrimination before a SEC hearing. The SEC alleged Cooperman increasing to his holding in Atlas after he learned of its plans to sell a pipeline asset from a company executive. When the asset sale happened, Cooperman gained a multi-million dollar paper profit. The SEC alleged that Cooperman received the information after vowing not to trade on it. Cooperman denied this point. Cooperman eventually settled the insider trading case with the SEC without admitting wrongdoing or agreeing any industry bar. Cooperman eventually agreed to pay US$ 4.9 million in fines and penalties and agreed to have an independent compliance monitor at this fund. Soon after the fiasco and facing investor redemptions, Cooperman returned investor capital and converted Omega Advisors into his personal family office.

The examples are endless. One can remember hedge fund honcho Steven A. Cohen and SAC Capital Advisors. Cohen bid his time and recreated his hedge fund business as the Point72 Asset Management family office in 2014. In 2018, Point72 started accepting outside capital.

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