close

SEC's Insider Trading Deal Gives Defense Bar New Tool

May 23, 2017

Fenwick's securities enforcement co-chair Michael Dicke was quoted in a Law360 article covering an unusual insider trading-related settlement between hedge fund founder Leon Cooperman, Cooperman’s firm Omega Advisors Inc., and the U.S. Securities and Exchange Commission.

The SEC agreed to let the founder and his firm pay a $4.9 million fine without suspension from the securities industry. The settlement agreement also required them to retain an independent compliance consultant to review their trading agreements and suggest improvements, an arrangement that Dicke said may inspire defense attorneys in some cases to seek similar settlements in their own insider trading cases in lieu of an industry bar.

Dicke, who previously served as the associate regional director for enforcement in the SEC’s San Francisco office, told Law360 that the deal is in some ways a classic compromise where both sides felt there was risk to litigating and wanted to cut a deal that enabled the agency to impose a prophylactic measure as close as possible to a suspension while the founder escaped a potentially career-damaging bar.

Law360 reported that the founder had sought permission to file an interlocutory appeal in April, after a Pennsylvania federal judge rebuffed his argument that he couldn’t be held liable under the misappropriation theory of insider trading because he only agreed not to trade on a tip, giving rise to a duty of trust and confidence, after he received the information.

The SEC prevailed on the issue at the district court, but the uncertainty surrounding the founder’s request for an interlocutory appeal on the insider trading issue could have pushed both the fund manager and the SEC to negotiate the settlement, Dicke told Law360. “The reason I think that both sides looked at this and decided it was a good case to compromise was the legal issue was novel.”

The full article is available through the Law360 website (subscription required).​​