Cooperman Says U.S. Seeks Information About Omega Trades

Leon Cooperman built a reputation as a stock picker over almost half a century by scrutinizing undervalued companies and asking management tough questions.

This week, the billionaire told his clients that the government is looking into some of the trades at his $9.4 billion hedge fund Omega Advisors. The firm, Cooperman wrote in a letter dated March 24, was subpoenaed by the U.S. Attorney’s Office in New Jersey and the U.S. Securities and Exchange Commission, which are seeking information on trading in certain securities.

The inquiries are at a “very early stage” and no one at the firm has been accused of any wrongdoing, according to the letter. The 71-year-old said that his firm is cooperating with both agencies and “is highly confident that it and its employees have at all times acted properly and lawfully.”

Cooperman is a regular guest on financial news television and speaker at investment conferences, and has built a track record as a value investor, first at Goldman Sach Group Inc. and later at his own firm. The inquiry comes as the U.S. investigates wrongdoing on Wall Street, which included a crackdown on insider trading that ensnared hedge funds such SAC Capital Advisors and Galleon Management.

“We work hard to develop legitimate insights that are critical to fundamental research and take great care in our handling of any information we receive regarding the companies we cover,” he said in the letter. “Had the authorities asked us to do so, we would have voluntarily provided them with all the information they seek, but they chose instead to pursue a different tack.”

Bronx Upbringing

He declined to comment when contacted by Bloomberg News, as did Florence Harmon, an SEC spokeswoman. Matthew Reilly, a spokesman for Paul Fishman, the U.S. attorney in New Jersey, said he could neither confirm nor deny the existence of an investigation.

The son of a plumber, Cooperman grew up in the South Bronx. He bagged fruit and changed tires to make money as a teenager, and later learned how to analyze securities from the late Roger Murray, a professor at Columbia Business School, where Cooperman graduated.

He founded Omega in 1991 after spending 25 years at Goldman Sachs & Co., where he had started the bank’s asset management unit.

Omega, based in New York, has returned an annual average of

11.1 percent from inception in 1991 through 2014, according to an investor letter. Last year, after Omega declined 2.8 percent amid the slide in oil prices. Cooperman said he was embarrassed by the losses.

Graham Disciple

Omega also sub-advises funds sold by Deutsche Bank AG and Russell Investment Group, according to regulatory filings. Renee Calabro, a spokeswoman for Deutsche Bank declined to comment. Jeff Hussey, chief investment officer at Russell, didn’t return a call seeking a comment.

Cooperman in his investor letter cited Benjamin Graham, the late Columbia Business School professor who is seen as one of the fathers of value investing. According to Graham, Cooperman wrote, a prudent investor evaluates management by studying the company’s financials and judging their responses “in face-to-face meetings to probing questions.”

“This discipline has always been a hallmark of Omega’s investment process,” Cooperman said in the letter.

Cooperman owns properties in Short Hills, New Jersey, as well as in Boca Raton, Florida, where he voted in the last general election. He’s among the hedge fund billionaires who agreed to give the majority of their wealth to philanthropy under billionaire Warren Buffett’s Giving Pledge program.

Worst Chapter

In 1998, Cooperman bet big on emerging markets -- and lost. The misstep was compounded by Omega’s investment of more than $100 million with Czech financier Viktor Kozeny in a plan to take over Azerbaijan’s state oil company. New York state prosecutors accused Kozeny of stealing Cooperman’s investment, while U.S. prosecutors said Kozeny led a multibillion-dollar bribery scheme in connection with the Azeri deal.

In 2007, Omega paid $500,000 to the U.S. to resolve the bribery investigation. Omega didn’t admit wrongdoing while it accepted legal responsibility for the actions of an employee who admitted joining Kozeny’s bribery scheme. Kozeny denied wrongdoing.

In all, Omega lost a total of $500 million, or 13 percent of its total assets in 1998, after which Cooperman fired almost the entire emerging-markets team. He later recovered some of the money. He called the episode the worst chapter of his life.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE