Is Cooperman The New Cuban?

The Securities and Exchange Commission brought charges against Mark Cuban for insider trading. The SEC claimed he was an insider based his status as a big shareholder in the company or that he had agreed to not trade on material non-public information disclosed to him.

The SEC brought charges against Leon Cooperman for trading on material non-public information. The SEC is alleging that Cooperman used his status as a big shareholder in Altas Pipeline Partners to obtain confidential details about an upcoming company transaction.

According to the SEC complaint, an executive at Atlas Pipeline shared confidential information with Cooperman believing he would keep in confidential and not trade on that information. That seems a lot like the Cuban facts.

The SEC alleges that the Cooperman explicitly agreed to not use the information to trade. Going back to the Cuban case, he never agreed to keep the information confidential.

The trading activity outlined in the SEC order shows Cooperman making a huge bet on Atlas Pipeline. At one point his activity was 95% of the daily volume of trading on a set of Atlas Pipeline call options.

It looks there was a parallel action of criminal charges. But the Newman case from the Second U.S. Circuit Court of Appeals sets a standard that a recipient of an inside tip must know the confidential information came from an insider and that the insider disclosed the information for a personal benefit.

The Salman case is before the Supreme Court and is looking at the Newman standard for criminal insider trading. If that standard is upheld, it seems unlikely that Cooperman would be in an orange jumpsuit. According to reports, the DOJ has suspended its investigation into Cooperman until the Salman case is decided.

The civil charges from the SEC is based on misappropriation so it does not need to prove that the tippee received a benefit.

It seems like the case will hinge on the credibility of the Atlas Pipeline executive. That executive is not named in the complaint.

Assuming the SEC case passes the credibility standard, it will need to prove the legal standard that Cooperman’s trading should be illegal.

Given the recent history of the SEC bringing cases in front of its own administrative judges, this case was filed in federal district court.

I see two likely reasons. Cooperman demanded this venue in exchange for agreeing to the tolling of the statue of limitations. (The trading happened in 2010.) Or, the SEC is looking to set legal precedent.

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