Clients of Leon Cooperman’s Omega Advisors could be in for a nasty shock when they look at the value of their investments at the end of the year.
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According to a report from Bloomberg News, Cooperman, who is currently embroiled in a legal battle with the SEC, is planning to withhold less than 1% of client assets if legal costs far exceed what he’s expecting, according to investors.
Rather than lumping the bill on clients straight away, Cooperman has informed his investors he anticipates his insurance will cover all the expenses, and if necessary he’ll spend some of his own money.
Leon Cooperman Plans To Charge Clients For Legal Fees
The SEC case is based on suspected insider trading by Cooperman who reportedly had non-public information on Atlas Pipeline Partners. As Bloomberg reported back in September when the SEC case was first made public:
“Marking the culmination of an investigation that dates back to at least 2011, the Securities and Exchange Commission said Cooperman, 73, used his status as one of Atlas Pipeline Partners’ largest shareholders to obtain confidential information from a company executive. He earned about $4 million by buying securities in Atlas before the sale of a company asset in 2010, which caused shares to jump 31 percent”
It has been reported that the SEC initially approached Cooperman regarding a settlement earlier this year. However, according to reports on the matter, the proposed settlement would have required about $8 million in penalties and prevented Cooperman from managing client money for a period. Rather than pay the fine and shutter Omega, Cooperman denied wrongdoing and vowed to fight the agency’s claims.
While Cooperman has told his investors that Omega’s insurance will foot the bill for any legal costs relating to the suit, there’s no guarantee investors won’t be on the hook for some cash. In rare cases, government agencies have stipulated that a settlement must be paid out of the accused’s own pocket rather than with insurance money. If the SEC looks to enforce this rule with Cooperman, investors could find themselves having to pick up the tab for the billionaire’s mistakes.
Omega has an impressive record behind but this latest development may be the beginning of the end of the fund. Omega has outperformed the S&P 500 Index by about 2% a year since 1993, Russell 2000 by about 3% annually and the MSCI World Index by about 6%.
According to Bloomberg, this year the Omega Credit Opportunities Fund is up more than 13%, the Omega Equities fund has gained more than 5% and the firm’s main fund is up over 3%. However, despite these better-than-average returns, investors are fleeing the fund. Omega, which oversaw $9.4 billion in early 2015, now manages about $4.6 billion, which is approximately a 50 percent drop in AUM.