PHILADELPHIA (Reuters) - A U.S. judge on Tuesday held off ruling on whether to throw out a government complaint against billionaire investor Leon Cooperman and his firm, Omega Advisors Inc, after the defendant’s attorneys requested a dismissal, in a case that could set a legal precedent on insider trading.
The case’s outcome could affect the way traders across Wall Street go about making investment decisions.
U.S. District Judge Juan Sánchez in Philadelphia said after 90 minutes of oral arguments that he would take the request by Cooperman’s lawyers to dismiss the U.S. Securities and Exchange Commission civil case “under advisement.”
An attorney for Cooperman, Theodore Wells Jr., also said his client had invoked his constitutional 5th Amendment right against self-incrimination and did not answer questions during the SEC’s investigation because of a separate criminal probe.
Wells said Cooperman would now be willing to be deposed by the SEC.
The regulatory agency first filed the civil complaint in September, charging Cooperman, 73, and his firm with illegal trading in Atlas Pipeline Partners LP in 2010. The SEC alleged that Omega had improperly traded in options after Cooperman discovered the planned sale of a gas processing unit.
Cooperman’s trades in Atlas earned roughly $4 million when Omega Advisors invested before Atlas sold the unit. The SEC had alleged that Cooperman was a big shareholder in the company and used his position to obtain confidential information about the sale that other investors did not know about.
In December, lawyers for Cooperman and Omega filed a motion to dismiss the case.
Cooperman is one of the industry’s best known stock-pickers. The son of a plumber in New York’s Bronx borough, he founded Omega in 1991. He is now worth $3 billion, according to Forbes.
Sánchez’s decision could set a legal precedent. At issue is whether people who work outside a publicly traded company are allowed to trade on confidential information if they say they will not do so and at which point such individuals have a legal duty to the company. Employees are already legally prohibited from trading on such information.
As another lawyer for Cooperman, Daniel Kramer, put it, the investor may have “broken a promise” to an Atlas executive, but did not break insider trading laws.
“Not every broken promise is fraud,” said Kramer, who was repeatedly questioned by the judge.
The SEC has said Cooperman “misappropriated” information from that executive about the sale of the pipeline unit.
A unit of Targa Resources Corp (TRGP.N) bought the Atlas business in early 2015.
Even if Cooperman had made such an agreement, he did not have a legal duty to the company at that time, Kramer said on Tuesday.
He said the SEC’s case should be thrown out because it does not establish that Cooperman had such a duty.
SEC lawyer Bridget Fitzpatrick said Cooperman’s legal duties to Atlas began when he made an agreement to keep the information confidential, which she said happened during one of three phone calls in July 2010. However, Fitzpatrick conceded the agency could not definitively say when the agreement was made.
The hedge fund industry in particular has been the target of insider trading cases by the U.S. Department of Justice and SEC in recent years, an effort that has led to numerous convictions, penalties, and legal challenges. But those cases, generally, have focused on the individuals who received and traded on the information, and not the company employees who gave it to them.
As the two sides battled in court on Tuesday, Judge Sánchez at times grilled Kramer about his arguments.
“If a fraud is committed, why does it matter why the agreement is made before or after?” Sánchez said.
Reporting by Suzanne Barlyn in Philadelphia; Editing by Alan Crosby and Jonathan Oatis