Insider trading is the illegal act of trading or retreating stocks based upon non public information that leads a company to success in the market. These companies are entitled to data and information about their firm but they also are required to share this information publicly. Not doing so leads to an unfair economy and financial system where there is no honesty among companies. A company named Omega Advisors recently was accused of this action, especially under their creator Leon Cooperman. Mr. Cooperman is a world renowned hedge fund manager, investor, and philanthropist. In 2010 the Securities and Exchange Commission (SEC) announced their accusation of Cooperman and Omega Advisors of “reaping $4 million in illegal profit by using nonpublic information about an energy deal in 2010” (NY Times). The energy deal was though Atlas Pipeline, who's biggest shareholder is Cooperman and who “engages in transmission, gathering, and processing of natural gas” (Bloomberg.com). According to the report, Cooperman had conversed with an executive of Atlas about an upcoming sale of its gas-processing facilities to a different energy company in Elk City, Okla. in July of 2010. This encounter could have been totally legal and harmless but the aspect that reaches through the concept of insider trading is that Cooperman spoke with this executive on three different occasions, July 7, 19, and 20, and then coincidentally bought securities in Atlas started on July 7 ending on July 27. With this information, Cooperman and Omega Advisors gained a larger position in the company and profited when Atlas's stock took a 31 percent jump after the announcement of the sale. The executive of the company stated that Cooperman gave them his word that he would not use this information in any form to influence his action in the market. On top of this issue, Cooperman's son and grandson both traded in the same stock in the same time period and profited but both denied saying that it was not based upon the same inclining information that Cooperman had acquired.
The process of accusing someone or a firm for insider trading is very difficult. This is because it is based upon suspicious market activity that is out of the ordinary. It is difficult to keep track of every companies buying and trading as well as any spikes in profit or gain. The way that the SEC and other trading advisory boards regulate this is with rules and regulations that must be followed in order for all of the transactions to be legal. First they have Rule 10b5-1 which “conveys the Seller’s indication of the amount, price and date of stock sales with such specificity that Company X does not have any discretion over how, when and whether to sell stock” (sec.gov). This basically means that the company's have to log all the specifics about buying and selling of stocks as well as reasoning behind the action. There are also three forms to be filed; Form 3 is used to show the initial stake in the company, Form 4 is used to disclose a transaction of company stock within two days of the purchase or sale, and Form 5 is used to declare earlier transactions or those that have been deferred. These allow for the SEC to look through company records in an organized fashion and system. All of these implications are ways that company's can avoid investigation and to promote a fair and honest market where undermining does not occur. Unfortunately, Cooperman slipped up with this one sale and was caught. The case was filed in a Pennsylvania court in September of 2016 where the lawsuit became one of the biggest of insider trading in history. In October, the CEO declined settling for $8 million after the SEC proposed their guidelines so Cooperman went on to spend $100 million on law advisers through the course of the suit. Finally in May of 2017, Cooperman settled with the SEC paying $4.9 million in civil penalties and forfeited profits as well as the firm must have all of its business transactions monitored until 2022.
|Leon Cooperman debating market prices in a CNBC interview.|
There are a couple of individuals who were strongly affected by this investigation. The most major of them all is Cooperman and his company. When a company enters the market they have a civil responsibility to follow the unsought rules of the market as well as the actual rules in place. It is a moral duty to understand that information used that others were not aware of is unjust and makes the market look like a popularity game. Cooperman and Omega Advisors not only lost potential business partners and profit but they also lost integrity in their company. Originally they were seen as one of the most respected advisory groups in the economy, but after this case they will run their business with a chip on their shoulder. Every move they make is monitored and some future customers might back out of business deals because of the lack of ethical behavior on Omega Advisors' end. Atlas Pipelines was also affected since they are the ones who gave this information to Omega Advisors' without strict understanding that the information was not to be shared or used. This effects their future endeavors since they now look like a naive company that does not know when to keep information to themselves and when to share it freely. The employees of both companies are also affected because they are held accountable when trouble like this occurs. They look ignorant since they did not properly go through the steps in order for the trading to be fair. All of these individuals have an ethical obligation to fulfill in order to participate in the market and they took advantage of it to gain profit.
The idea behind individualism is that the only goal of a company is to profit so their only obligation is to maximize profit for the owner or the stockholders. In this case an individualist would deem this situation ethical to an extent. The reason they would partially think it was ethical is because Cooperman was honestly looking to make a security transaction based on the fact that his company, Omega Advisors, would ultimately gain a surplus of profit. The part of the case that an individualist would see unethical is that despite the fact that Cooperman was being selfish for the sake of his company, he still disobeyed rules and regulations that the SEC puts in place. One of the aspects of individualism is that a company can be as selfish as they need to be to profit but it has to be within the guidelines of the business or market.
The principles of this theory are that you must act rational, allow and help people make rational decisions, respect people and their autonomy, and be motivated by good will. A kantian would view this case unethical due to many different conditions. Cooperman did not act rational because he saw himself as someone who did not have to follow the rules and could go against the implications of the SEC. Omega Advisors did not allow or help anyone make a rational decision, they lied and deceived in order to gain profit based up information that was not meant to be used. They did not look at who it effects or how it will ruin their reputation in the market. Cooperman and his company did not respect others because they knew that the information that Atlas was providing with them was not meant to be used freely, it was information that had great value. They disrespected the autonomy of Atlas because they knew that the information about the energy deal was used in a small talk conversation and abused the fact that Atlas did not govern their information keeping well. Finally, Cooperman and Omega Advisors were not motivated by good will because they knew what they were doing was unjust and not right but they wanted to gain monetary wise not integrity wise.
This theory is based upon the benefit of the majority's happiness. A utilitarian would see this case as unethical because Cooperman and his firm were not looking to seek happiness for all but rather success for the few. They wanted to increase the profits of their firm but were not thinking about what unhappiness would occur in the result that they were caught. In the end Atlas was unhappy in the fact that they lost trust in a partner company and now found a weakness in their business plans. The competition in the market is also unhappy because they were unaware of this non public information so they were not able to benefit, instead Omega Advisors got all the joy out of the situation until they were caught. Cooperman also disrespected the individual freedom they have and that of Atlas. Within the market they have a duty to themselves and to others and they abused their level of representation.
This theory emphasizes the virtues, or moral character, in contrast to the approach that emphasizes duties or rules or that emphasizes the consequences of actions. The four virtues are courage, honesty, self control, and fairness. Someone who backs the virtue theory would presume this situation as unethical considering Cooperman lacked in each virtue of the theory. Cooperman looked to support him and his own business without care in how he abused his relationship with Atlas and within the market. There was no honesty in this case because Cooperman denied any allegations even though there was concrete evidence that lead to his accusation. There was no self control or temperance in the aspect that Cooperman has been in this business for a while and knew the rules of the trade but he still could not resist the information and the fact that he could profit from using it. Finally there was an influx of unfairness since the market is based on the fact that companies have to disclose information to the public to make the market just but yet Atlas did not disclose the information and Omega Advisors used the secret information to gain more than competitors.
|Atlas Pipeline Partner's Elk City facility.|
Celarier, Michele, January 18, 2017, “ The SEC's Biggest Insider Trading Case Is Heating Up” http://fortune.com/2017/01/18/leon-cooperman-insider-trading/
Cheng, Evelyn, May 18, 2017, “Leon Cooperman's Omega settles with SEC; 'No restriction on my ability to invest'” https://www.cnbc.com/2017/05/18/leon-coopermans-omega-settles-with-sec-report-citing-letter.html
Chung, Juliet, September 21, 2016, “SEC Accuses Leon Cooperman of Insider Trading” https://www.wsj.com/articles/sec-charges-leon-cooperman-with-insider-trading-1474470504
Company Overview of Atlas Pipeline Partners GP LLC, March 7, 2018, https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapid=22489293
Gara, Antoine, May 18, 2017, “Hedge Fund Billionaire Leon Cooperman Settles With SEC On Insider Trading Charges” https://www.forbes.com/sites/antoinegara/2017/05/18/hedge-fund-billionaire-leon-cooperman-settles-with-sec-on-insider-trading-charges/#58a4f7e02a76
Stevenson, Alexandra, September 21, 2016, “Leon Cooperman, a Billionaire Charged With Insider Trading, Prepares to Fight” https://www.nytimes.com/2016/09/22/business/dealbook/leon-cooperman-insider-trading.html
U.S. Securities and Exchange Commission, March 7, 2018, https://www.sec.gov/fast-answers/answersinsiderhtm.html