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Lee Cooperman: My Settlement with the SEC

Lee Cooperman, Omega Advisors Chairman & CEO

I appreciate this opportunity to discuss my recently settled case with the SEC and my stock market outlook. What I hope to accomplish here this morning is, first and foremost, to highlight the abusive nature of the agency's enforcement practices and, in doing so, attempt in my small way to spur changes in the way cases like mine are pursued. My gripe is with the process, which is wantonly and unnecessarily destructive.

As you are aware, I have entered into a "no admit / no deny" settlement, which prohibits me from commenting on the government's allegations or the strength of my defenses. I believe that the outcome speaks for itself. So today, let's focus on the process. I hope the new Chairman of the SEC, Jay Clayton, is watching today, because he is the one individual best positioned to effect changes in that process. I congratulate him on his appointment and wish him well.

Let's discuss the background and facts:

We received the original subpoena from the SEC in March 2015. Through our attorneys, we informed the SEC that if they withdrew the subpoena, we would meet with them voluntarily and answer all their questions, and that if they weren't satisfied with our answers, they could reinstate the subpoena. They refused.

Over the course of the next 18 months or so, with the subpoena hanging over our heads while the government took its time reviewing our document production, my business bled investor assets because of the anxiety occasioned by the subpoena – something that the government didn't seem to care about. Then, in September 2016, the SEC filed suit, and between then and the settlement, a total of about $4 billion in assets left the firm. Now, let's understand what that means in dollars and cents. With a 1-1/2 and 20 fee structure, that's about $140 million per year of lost income. That is less relevant to me than to the 40-odd Omega personnel who saw a starkly diminished earning opportunity that impacted themselves and their families.

As you know, I am a signer of the Buffett/Gates Giving Pledge. At the time I did so, I told Warren Buffett that asking for one-half of one's wealth wasn't asking for enough, as I subscribe to the sentiment of Andrew Carnegie, who more than a century ago famously said, "The man who dies rich, dies disgraced." I have a number of charitable involvements, with my signature activity being Cooperman College Scholars, a program I founded and underwrite that identifies talented but needy students in Essex County high schools, helps them navigate their ways to college, pays a substantial amount toward their college tuition, and provides support during college to help ensure that they don't fall by the wayside before reaching their academic goal. My initial objective was to serve up to 500 youngsters in this way. With what the SEC cost me, I could have increased that number to 2,500. This is meaningful, because the average lifetime earnings of a college graduate are more than $1 million over those of a non-college graduate.

Shortly before charges were filed, the SEC's original ask in settlement talks included a five-year industry bar, which at my age would effectively have ended my career, and an $8 million fine, which in combination with the bar would have been construed by many people as an admission of wrongdoing. We rejected the offer, the government filed, and we proceeded to prepare for trial.

About six or seven months later, the government came to us with a new ask – no bar, no admit / no deny, and a $4.9 million payment. I'm not permitted to speculate on what might have caused this about-face, so I'll leave it to your viewers to infer what they will. But I would like to ask the SEC: "What did you learn between your initial settlement offer and your final settlement offer that caused you to change your position so radically? Since I would have accepted your final offer had it been on the table initially, and in the interim you destroyed my business, this question is a matter of more than idle curiosity for me."

I now had to make a decision of going to trial or settling. I was advised that going to trial could cost me another $15-20 million in legal and expert-witness fees and remain a distraction, while continuing to cause my investors anxiety, and that the smart move was to settle. Though highly conflicted, I was convinced in the end to accede to their logic.

If the SEC had originally asked for what we settled for in the end, I would have accepted, knowing the damage that the lingering uncertainty would do to my business and to the lives of my colleagues. By the time we settled, the damage had already been done.

Forget for a moment about Omega and Lee Cooperman. Let's talk about the legendary Hank Greenberg, a war hero and philanthropist who founded AIG and built it into the world's most profitable insurance company. Twelve years ago, the New York State Insurance Commission went after him and, to get the matter behind, him, he offered a settlement of $16 million to resolve the case. They rejected his offer, asking instead for billions. He refused, over the next 12 years spent about $100 million in legal fees – God only knows how much taxpayer money the Insurance Commission squandered fighting him – and they ended up settling for $9 million, $7 million less than he originally offered. I'm not a fool. I know the State Insurance Commission is not the SEC. But where Hank's case and mine meet is on the battlefield of abusive enforcement processes that appear to be running amok at taxpayers' expense.

In the end, the government pays no price for what they do. The taxpayer foots the bill; the government enjoys sovereign immunity, so I can't sue them; and the damage they inflicted cannot be undone, though I'm committed to doing my best to try. Unlike the United Kingdom, our legal system doesn't mandate that the losing party pays. This is simply wrong and has to be changed.

I can now understand what was going through the mind of Ronald Reagan's former Labor Secretary Raymond Donovan, the first sitting cabinet officer to be indicted, who was charged in the 1980's on state charges of fraud and grand larceny. When he and his co-defendants were acquitted at trial of all charges, this is what he said: "It's a cruel thing they did to me. The question is, should this indictment have ever been brought? What office do I go to, to get my reputation back? Who will reimburse my company for the economic jail it has been in for two and a half years?" Different office of a different government, but Secretary Donovan's questions are just as relevant today, in my case and others like it, as they were 30 years ago.

I feel very comfortable about my reputation, but I don't feel good about the process.

Despite all this and the loss of assets under management that it occasioned, the Omega organization remains vibrant. Our senior investment team, as well as our senior operating, legal, compliance, accounting, database management, technology, trading, and investor relations teams, remain virtually intact. Furthermore, our performance has not suffered because of the distractions created by our issues with the SEC. We remain committed to delivering superior risk-adjusted returns to our investors. That has always been my primary focus, and it always will be.