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Securities and exchange Commission v. Cooperman

United States District Court, E.D. Pennsylvania

March 20, 2017



          JUAN R. SÁNCHEZ, J.

         The Securities and Exchange Commission (SEC) brings this civil enforcement action against Leon G. Cooperman and his investment advisory firm, Omega Advisors, Inc. (Omega), alleging Defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the Exchange Act) and Rule 10b-5 by engaging in insider trading. The SEC also alleges Cooperman violated §§ 13(d) and 16(a) of the Exchange Act by failing to file with the SEC required reports regarding his beneficial ownership of securities of eight different public companies. Cooperman and Omega move to dismiss the § 10(b) and Rule 10b-5 insider trading claim for failure to state a claim upon which relief can be granted pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). Defendants also move to dismiss the §§ 13(d) and 16(a) claims for improper venue pursuant to Rule 12(b)(3). Defendants' motion as to the insider trading claim will be denied, as the SEC has pleaded a plausible claim for insider trading with the necessary particularity. Because venue appears improper in this District with respect to the §§ 13(d) and 16(a) claims, Defendants' motion will be granted as to those claims.


         Cooperman, who resides in Boca Raton, Florida, is the president, chief executive officer, and majority stockholder of Omega, a registered investment advisory firm incorporated in Delaware and based in New York. Cooperman and Omega provide investment advice to Omega's hedge funds and other institutional clients. During the relevant time period, Cooperman managed or directed trading for the benefit of various accounts, including certain Omega hedge fund accounts (collectively, the Hedge Fund Accounts), institutional client accounts (Managed Accounts), certain family member accounts (Family Accounts), and his own offshore tax deferral account (Offshore Account).

         As of December 31, 2009, Cooperman was the beneficial owner of over nine percent of the common stock of Atlas Pipeline Partners, L.P. (APL), a Delaware limited partnership with offices in Philadelphia, Pennsylvania, an investment worth approximately $46 million. During the first half of 2010, Cooperman reduced his stake in APL, which was experiencing financial difficulties. By mid-2010, Cooperman had developed close relationships with APL's senior executives.

         In May 2010, APL received a confidential offer to purchase APL's Elk City operating facilities, a significant APL asset, for $720 million. Between May and July 2010, APL and the prospective purchaser negotiated terms of the potential sale pursuant to a confidentiality agreement.

         On July 7, 19, and 20, 2010, Cooperman had telephone conversations with “APL Executive 1, ” an APL officer and director, who told Cooperman that APL was negotiating the sale of Elk City for approximately $650 million. Although APL Executive 1 knew the Elk City sale was material nonpublic information, he believed Cooperman had an obligation not to use that information to trade APL securities, and during one of the aforementioned phone conversations, Cooperman explicitly agreed that he could not and would not use the confidential information to trade APL securities. At Cooperman's and Omega's direction, however, the Cooperman Offshore Account and the Hedge Fund and Managed Accounts began purchasing large quantities of APL securities between July 7, 2010 and July 19, 2010.

         By the time Cooperman spoke with APL Executive 1 on July 19, 2010, APL had reached an agreement to sell Elk City, and APL was preparing for a July 27, 2010, board meeting to discuss the sale. On July 20, 2010, immediately following another telephone conversation with APL Executive 1, Cooperman informed an Omega consultant that he had learned from someone at APL that APL had reached a deal to sell Elk City for $650 million. Cooperman and the consultant discussed the impact the sale would have on APL stock price, and the consultant expressed the view that the announcement of the sale would cause APL's stock price to increase significantly. That same day, Cooperman and Omega directed the purchase of additional APL securities worth approximately $620, 000. Over the next week, between July 21, 2010 and July 27, 2010, Cooperman and Omega continued to direct the purchase of APL securities.

         On July 27, 2010, APL Executive 1 informed Cooperman that APL's board had approved the Elk City sale. The next day, APL publicly announced for the first time that it was selling Elk City for $682 million. As a result of the announcement, APL's stock price increased approximately 31% and other APL-related securities greatly increased in value. The trades Cooperman directed in APL securities between July 7, 2010 and July 27, 2010 generated profits of approximately $4.09 million for the Offshore Account, Hedge Fund Accounts, Managed Accounts, and Family Accounts.

         On September 21, 2016, the SEC filed its Complaint, alleging Defendants committed insider trading by trading on the Elk City sale information. The SEC relies on the misappropriation theory of insider trading, which imposes liability on a corporate outsider who uses material nonpublic information to trade in securities, in breach of a duty of trust and confidence owed to the source of the information. The SEC further claims, since August 2010, Cooperman has failed to timely file beneficial ownership reports reflecting his holdings and transactions in the securities of eight public companies, in violation of federal securities laws. Defendants move to dismiss the Complaint, asserting the SEC has failed to sufficiently plead an insider trading claim, and this District is not the proper venue to adjudicate the filing claims.


         A. Failure to State a Claim

         In order to survive a Rule 12(b)(6) motion to dismiss for a failure to state a claim upon which relief can be granted, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks removed). A claim is facially plausible when the facts pleaded “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The “plausibility” standard is not a “probability requirement” but rather a requirement of more than a “sheer possibility that a defendant has acted unlawfully.” Id. A complaint which “pleads facts that are ‘merely consistent with' a defendant's liability . . . ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007) (internal quotation marks omitted)). In evaluating a complaint's sufficiency under these standards, the court must first “tak[e] note of the elements a plaintiff must plead to state a claim.” Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010) (quoting Iqbal, 556 U.S. at 675). Next, the court should “identify allegations that, ‘because they are no more than conclusions, are not entitled to the assumption of truth.'” Id. (quoting Iqbal, 556 U.S. at 679). Finally, where there are well pleaded allegations, the court “should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id. (quoting Iqbal, 556 U.S. at 679).

         Claims pursuant to § 10(b) and Rule 10b-5, including insider trading claims, are subject to heightened pleading standards under Rule 9(b), which requires a party to “state with particularity the circumstances constituting fraud.” Fed.R.Civ.P. 9(b); see Key Equity Inv'rs, Inc. v. Sel-Leb Mktg. Inc., 246 F. App'x 780, 784 (3d Cir. 2007) (“[I]n assessing the sufficiency of a § 10(b) claim, we . . . observe the heightened pleading requirements of [Rule] 9(b)[.]”). “Rule 9(b) requires, at a minimum, that plaintiffs support their allegations of securities fraud with all of the essential factual background that would accompany the first paragraph of any newspaper story-that is, ...

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