Acceleration

Ocwen’s Ousted Founder William Erbey’s Alter-Ego Called AltiSource Portfolio Solutions Q2 2019 Earnings Call Transcript

Leon Lee Cooperman of Omega Advisors: You know, it is very frustrating in terms of the amount of money you’ve spent on stock repurchase and the results that you’ve achieved. And I’m just wondering, if you can go in to more detail, more granularity as to why you believe the stock is mispriced relative to the business value.

Altisource Portfolio Solutions SA (NASDAQ: ASPS)
Q2 2019 Earnings Call

Jul. 25, 2019, 8:30 a.m. ET

Contents:

Prepared Remarks
Questions and Answers
Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Welcome to the Altisource Second Quarter Earnings Conference Call. [Operator Instructions]. Later, we will conduct a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Ms. Michelle Esterman, Chief Financial Officer.

Michelle D. Esterman — Chief Financial Officer

Thank you, operator. We first want to remind you that the earnings release Form 10-Q and quarterly slides are available on our website at www.altisource.com.

These provide additional information investors may find useful. Our remarks today include forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ.

Please review the Forward-looking Statements section in the Company’s earnings release, quarterly slides in Form 10-Q, as well as the risk factors contained in our 2018 Form 10-K, which described factors that may lead to different results.

We undertake no obligation to update these statements as a result of new information or future events.

During this call, we will present both. GAAP and non-GAAP financial measures. In our earnings release and quarterly slides, you will find additional disclosures regarding these non-GAAP measures. A reconciliation of GAAP to non-GAAP measures is included in the appendix to the quarterly slides.

Joining me for today’s call is William Shepro, our Chief Executive Officer. I’d now like to turn the call over to Bill.

William B. Shepro — Chief Executive Officer

Thanks, Michelle. Good morning and thank you for joining today’s call. I’m pleased with our second quarter. We continue to make good progress in streamlining Altisource and focusing on our larger opportunities.

We sold the majority of the BRS inventory, began selling our investment in RESI shares, supported Ocwen’s migration to a new residential loan servicing system and completed the sale of the Financial Services business.

After adjusting second quarter net debt from the July sale of the Financial Services business, we reduced net debt less marketable securities by 40 % from a year-ago to $167 million. With respect to our larger opportunities, we continue to win an onboard new business and develop our pipeline.

As we believe Altisource is substantially undervalued and doesn’t reflect the inherent value of our collection of businesses, we plan to continue to explore ways that could unlock this value.

As you can see on Slide 5, we generated $0.36 of adjusted diluted earnings per share, $16,2 million of adjusted operating income, $8.9 million of adjusted pre-tax income, and $23.3 million of adjusted EBITDA on $190.5 million of service revenue.

During the second quarter, our revenue, earnings and cash flow were impacted by Ocwen’s migration to its new servicing platform, which delayed referral volume and accounts receivable collections.

We estimate that this temporarily impacted adjusted pre-tax income by $3.5 million to $4.5 million and accounts receivable collections by $15 million.

We believe these are largely timing items and anticipate that in the second half of the year, we’ll receive most for the impacted referrals and receivables will return to a more normal level.

Second quarter adjusted operating income margins of 8.5% were impacted by revenue mix from the sale of the BRS assets and the delay in referrals associated with Ocwen’s Servicing system migration. Excluding just the BRS sale, Q2 adjusted operating margins were 11 %, similar to the first quarter.

Our earnings release and 10-Q provide a detailed discussion of our second quarter operating results compared to the same period last year. From a cash flow perspective, we generated $39.8 million of operating cash in the second quarter.

Operating cash benefited from the sale of the BRS homes and was negatively impacted by the growing receivables and the delay in referrals I just discussed.

With respect to investing and financing activities, we received $6.5 million from the sale of RESI shares and used $6.7 million dollars to repurchase Altisource shares, $5.8 million to repay our debt and $144,000 for capital expenditures.

We ended the quarter with $129 million of cash and marketable securities. With respect to marketable securities, we plan to continue to sell our shares in RESI over time and use the proceeds to repay debt.

Turning to Slide 6 and our scenarios. Now that the Financial Services transaction is complete, we updated our full-year scenarios.

As you can see on the slide, our updated scenario midpoint for adjusted pre-tax income is $44 million and adjusted earnings per share is a $1.82.

This primarily reflects the sale of the Financial Services business and certain overhead not included with the sale that will take time to reduce, and the delay in customer onboardings.

Keep in mind that the scenarios include losses from earlier stage businesses that we plan to separate. Adding back these investments, adjusted earnings per share at the midpoint of our scenarios would be $3.09.

We had a very busy quarter executing on our plans to simplify Altisource. We recently completed several strategic transactions, worked to separate our earlier stage businesses and assisted Ocwen in its migration to a new servicing system.

With respect to our strategic transactions, we sold the vast majority of the Buy-Renovate-Lease-Sell properties for $39 million less closing and transaction costs.

We sold $6.5 million worth of RESI shares, representing 566,000 of the 4.1million RESI shares we owned.

And in July, sold our Financial Services business for $44 million. At closing, we received a $40 million upfront payment, less closing and transaction costs, and are scheduled to receive the remaining $4 million on the one-year anniversary of closing.

As for our earlier-stage businesses, we plan to separate these businesses and eliminate future funding obligations, while enabling Altisource to continue to benefit from the potential upside.

We plan on funding Pointillist with $8.5 million and operating it as a stand-alone business this quarter and anticipate taking a similar approach with owners.com next year if not sooner.

We believe separating these companies and bringing in venture investors can create visibility into the value of the businesses and eliminate what has been a large cash burn.

Turning to Ocwen’s migration to a new servicing system. We assisted Ocwen in transferring its loans and establishing the necessary interfaces to continue receiving referrals. We are now working closely with Ocwen to complete the housekeeping associated with its transition so that we can archive our system. This will allow us to move forward with the planned migration of our data centers to the cloud, an important component of our Project Catalyst Savings.

We believe these actions to simplify Altisource will strengthen our balance sheet, bring more visibility to the value of our earlier stage businesses and increase our focus on our larger opportunities.

As you can see on Slide 7, we believe our progress on our larger opportunities is accelerating. I’d like to walk you through several of our wins and recent and planned program launches that are highlighted on this slide.

We were selected by an existing customer, which is one of the largest institutional real estate and mortgage investors in the US, to provide pre and post foreclosure field services for a portion of their portfolio. We anticipate receiving referrals in the fourth quarter. This win is a great example of our ability to grow existing relationships as they are already a customer of Equator and a recent customer of Hubzu.

In the first quarter, we signed an agreement with a top five servicer to provide field services. Over the last two weeks, we went live in six states and anticipate being in 10 states by the end of this month. We believe we are one of a few vendors engaged by this customer in these states. Also, in the first quarter, we started to receive new REO referrals to provide asset management, real estate brokerage, auction and field services from a top 10 servicer. During the second quarter, the customer completed the bulk transfer of its legacy REO portfolio to us.

We signed an agreement with a top 25 servicer to provide foreclosure, auction and field services for their FHA portfolio. We anticipate receiving referrals in the fourth quarter. We signed an agreement with a non-bank servicer for REO auctions and began receiving referrals in July. We began receiving referrals from a servicer to provide REOl asset management, real estate brokerage and auction services and REO field services on their entire REO portfolio. We also began receiving referrals from another of our customers during the second quarter.

Finally, I’d like to explain why we believe our collection of businesses is worth substantially more than Altisource’s current enterprise value. Altisource’s businesses are making great progress. We have long-term agreements with Ocwen and NRZ and are winning meaningful new business with some of the largest servicers in the industry in a low delinquency environment.

We anticipate that these wins are going to build attractive and more diversified revenue streams. When you combine our attractive customer base with any softening of the economy, Altisource represents a very strong countercyclical opportunity.

As we believe our share price doesn’t reflect the inherent value of Altisource, we plan to continue to repurchase shares and explore ways to maximize shareholder value. This may include from time-to-time exploring the potential sale of one or more of our businesses, third-party investments in certain of our businesses or other forms of strategic transactions.

Before opening the call up for questions, I’d like to thank Altisource’s Leadership team and our employees for the focus and commitment they are shelling as we simplify Altisource, develop our larger opportunities and provide great service and results for our customers.

Our business models rely on the strength of our people. We believe that our strategy will not only benefit shareholders, but also provide significant career opportunities for employees. We believe our employees commitment to service and results is one of the reasons we are seeing an acceleration in new business wins.

I’d now like to open up the call for questions. Operator.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from the line of Leon Cooperman with Omega Family Office. You may begin.

Leon “Lee” Cooperman — Omega Advisors — Analyst

Thank you.

You know, it is very frustrating in terms of the amount of money you’ve spent on stock repurchase and the results that you’ve achieved. And I’m just wondering, if you can go in to more detail, more granularity as to why you believe the stock is mispriced relative to the business value?

  • That’d be number one.
  • Number two, what is the cash generation expectations for the full year that you’re now looking at?
  • And third, would you consider a sale of the entire Company as opposed to divisional dispositions?

William B. Shapiro — Chief Executive Officer

So, Lee, good morning. Let me take those in order.

So, with respect to the stock being mispriced, Lee, we have a collection of businesses that we believe are very valuable.

We have a field services operation. We’ve got the marketplace, which includes Hubzu and Equator, and we’ve got what we’re calling origination and mortgage solutions businesses.

Those businesses, we believe are performing very well. And if you look at them individually, we believe they would trade at a higher multiple than they’re currently trading for, when you look at the enterprise value at Altisource today, if you looked at them individually.

And we also believe we’re making very strong progress. The sales wins are really accelerating as I spent time walking through those on the call. And we believe if you combine those sales wins, any softening of the economy and a collection of businesses that we believe are worth substantially more individually than they’re — that we’re trading for today, the stock is a very good goodbye in our opinion.

Lee Cooperman — Omega Advisors — Analyst

Are you weighing in tax liabilities and dispositions? In other words, if you sold the entire company, you would be avoiding double taxation. If you sell off individual divisions, assuming you build good businesses, you have unrealized capital gains, which would trigger tax liability as you sell individual businesses. Have you weighed that into you consideration?

William B. Shapiro — Chief Executive Officer

Yes, we have taken that into consideration and I’ll let Michelle respond.

Michelle D. Esterman — Chief Financial Officer

Yes. So, I think we’ve thought about that and believe that what Bill said is true.

We do have large NOLs in Luxembourg and believe we could structure transactions in such a way that would beat taxation for us.

William B. Shapiro — Chief Executive Officer

And then, in terms of cash — sorry go ahead.

Lee Cooperman — Omega Advisors — Analyst

We’re good. The other questions…

William B. Shapiro — Chief Executive Officer

In terms of cash for the full-year, we saw I think a $15 million — we should have collected we believe about $15 million more in collections on the revenue we generated in the second quarter than we did.

And that was really a product of Ocwen’s servicing transition and changing the way in which it pays its vendors.

We’re working very closely with Ocwen to bring those receivables down and anticipate making progress, very good progress between now and the end of the year.

And assuming that goes well, we still think we’re looking at the $60 million to $70 million of adjusted operating cash for the year.

Lee Cooperman — Omega Advisors — Analyst

And would you say you have excess cash in the company now?

William B. Shapiro — Chief Executive Officer

Yes. So, since the end of the second quarter, Lee, we sold the Financial Services business and we used that money to pay down our debt as is required by our agreement.

And as we sell the RESI stock, we’re also required to use that cash to pay down the debt.

And so, again, we’re comfortable with our — very comfortable with our cash position.

Lee Cooperman — Omega Advisors — Analyst

So, at the low-end, $60 million cash generation, there are about what, 16 million shares outstanding now?

William B. Shapiro — Chief Executive Officer

Yeah, roughly.

Lee Cooperman — Omega Advisors — Analyst

So, you’re generating about $4 a share in cash?

William B. Shapiro — Chief Executive Officer

And about 16.4 million shares outstanding on a fully diluted basis.

Lee Cooperman — Omega Advisors — Analyst

And what about the last question? If somebody was courageous and wanted to try to buy the whole entity, is this something the Board would consider?

William B. Shapiro — Chief Executive Officer

So, Lee. I think it’s — I don’t know that we’re going to say much more than we said in our prepared remarks. Right now, we believe the collection of businesses are worth a lot more money and — than Altisource is trading for today.

And so, we’re going to continue to look at our options, which include — which may include selling some of the businesses, raising some equity in our earlier stage businesses and other options.

And I think we’ll just leave it at that for now.

Lee Cooperman — Omega Advisors — Analyst

Thank you.

William B. Shapiro — Chief Executive Officer

Thanks, Leon.

Operator

Thank you. Our next question will be coming from Mike Grondahl from Northland Securities. You may begin.

Mike Grondahl — Northland securities — Analyst

Hi. Yeah. Good morning, Bill and Michelle. Just Ocwen is switching servicing systems, would you say that the decrease in Hubzu sales is like a 100 % timing? And what kind of gives you confidence that that’ll come back? And when do you think it comes back? Have you have you began to see it yet?

William B. Shapiro — Chief Executive Officer

Yeah. So yes, we’re already starting to see the referrals pick up, Mike.

But basically, if you look at our revenue per delinquent loan and then we look at that at a more granular level inside of Altisource, we believe the reason why that’s come down — one of the primary reasons, is because of the delay in referrals associate — there’s two reasons.

One is just sort of the normal QC work that goes it’s associated with switching systems and we’re switching both the servicing system and the REO management system.

And the second is there’s a grace period that Ocwen provides its servicers, as part of changing the service and the legal servicing entity that’s servicing their loans.

And that also resulted in a delay in referrals. We believe that cost us roughly. Michelle, what was the number about $11 million?

Michelle D. Esterman — Chief Financial Officer

$11 million of revenue.

William B. Shapiro — Chief Executive Officer

Yeah, $11 million of revenue. And then when we break it down by product, Mike, we got to the $3.5 million to $4.5 million of earnings. And yes, we are starting to see the referrals pick up.

Mike Grondahl — Northland securities — Analyst

Got it, guys. Any field services? And what’s kind of coming from NRZ? Any change in behavior there?

William B. Shapiro — Chief Executive Officer

Now, it’s been business as usual, as far as we can tell, Mike.

Mike Grondahl — Northland securities — Analyst

Got it. And then with the…

Operator

with the

William B. Shapiro — Chief Executive Officer

But we are making — by the way, what is interesting in that business is we’re making a lot of progress, adding new customers. And we’re starting to see the growth so far this month, over the same month last year, it’s beginning to accelerate.

And then, we had a top five bank. We’re going to be in 10 states hopefully by the end of this month.

And we’re making — we just landed a very, very large win with that largest owner of real estate that’s going to launch, we believe, in the fourth quarter. So we’re very pleased with the progress we’re making in that business.

We’re also very pleased with the progress we’re making inside of Hubzu.

And we really have seen an acceleration of clients that have actually finally onboarded after years in some cases of winning a deal, negotiating agreements, getting through all the compliance and control requirements and finally onboarding.

So, we’re really pleased with the acceleration we’re starting to see there as well.

Mike Grondahl — Northland securities — Analyst

Good, good. In terms of the sale of Financial Services and BRZ, do you have the rough to 2 Q contribution from both of those?

William B. Shapiro — Chief Executive Officer

So, with respect to the Buy-Renovate-Sell business, Michael, we actually sold those homes at a kind of loss.

And so, they had a negative impact on our margins for the quarter. I think the sales price was $39 million.

And I think today, we own two homes with a balance of about $400,000 of book value that we haven’t sold yet.

And then, on the Financial Services business, we’re not breaking it out in detail, but I think approximately $6 million of pre-tax for the year.

Mike Grondahl — Northland securities — Analyst

For the year, OK. And then, the midpoint — go ahead.

William B. Shapiro — Chief Executive Officer

And the gain approximately, from the sale of that business, we anticipate in July, you’ll see roughly an $18 million gain from the sale. That’s built into our updated scenarios.

Mike Grondahl — Northland securities — Analyst

Ok. Your adjusted EPS under the new guidance if well — it looks like it dropped from $2.23 to $1.82.

Can you give us a bridge walking that down? Is it simply Financial Services and BRS?

Can you just help us understand the decreased kind of the component?

 

William B. Shapiro — Chief Executive Officer

Sure. Yeah, so a large component is the Financial Services business.

And then think about when you sell a business as a carve-out, there are some costs that didn’t get sold, that are left still at Altisource that we have to work to eliminate.

So there are some additional costs related to that business that we’re going to need to continue to eliminate. So it’s the loss of the earnings from that business as well as some of those additional costs that we will work to eliminate.

And then it’s the delay from what we originally expected in onboarding some of these customers.

We’re starting to see that accelerate, but it’s going to impact our full-year. And then lastly, I think we have modeled our debt balance to be a little bit lower at this point in time.

And so, interest expense is a little bit higher.

Mike Grondahl — Northland securities — Analyst

Got it. And then, could you give a little bit more update on Pointillist and Owners and kind of the trends you’re seeing there.

And I think you said — did you say you’re going to invest $8.5 million in Pointillist ?

Is that like right now or over the course of the year, so just an update on both would be good?

William B. Shapiro — Chief Executive Officer

Yeah. So with respect to Pointillist , our plan is — we completed all the legal documentation to establish this as a separate company and that we worked with our Board and have agreed to essentially put $8.5 million in the company.

And then the plan is, even though it’ll be consolidated on our income statement and balance sheet, they’re going to run on their own and be a stand-alone.

And it will be — our plan is for it to be an unrestricted subsidiary and anything we do with them in the future will have to be on an arm’s length basis based upon our assessment of the performance of the business.

And so that’s the plan for Pointillist . They’re making very good progress. They signed some attractive agreements and pilot programs during the quarter.

We’ll provide an update with more specificity on a later call, but they’re making very good progress in terms of signing household names and have a very, very attractive pipeline that’s both a direct pipeline and a pipeline through our channel partners. So we’re very pleased.

The strategy with Owners, Mike, is to essentially do the same thing. It’s just a little bit further behind.

And with all the transactions we’re working on, we’re catching up. But we are working to do something similar with Owners. And owners, we’re continuing to make very good progress.

We’re continuing — from a net revenue perspective, our model is changing a little bit. So our net revenue growth is still anticipated to be very attractive because under our evolving model, we’re going to keep more of the commission.

But the gross revenue is a little bit — the growth is a little bit slowed down from what we originally anticipated. But on a net basis, which is what really matters, we’re very pleased with the progress we’re making.

Mike Grondahl — Northland securities — Analyst

Got it. And then Project Catalyst is that kind of where you want it to be? Is there a lot of wood still to chop there? Kind of where are you there?

William B. Shapiro — Chief Executive Officer

Yeah. I mean largest benefit we’re still going to get from Project Catalyst is going to be the data center.

So for the most part, we’re going to be moving completely off of our own data centers or the data centers or data centers we lease, into the cloud.

And we estimate that could save us about $8 million to $10 million next year once we complete the process, so on a run rate basis, about $8 million to $10 million a year.

And so, that’s a very important component of Project Catalyst.

There’s still some facilities consolidation and some automation initiatives, where we’re building some robotics to improve the efficiencies of some of our businesses.

Mike Grondahl — Northland securities — Analyst

Got it. And one last follow up, the $18 million gain from selling the Financial Services business, so is that included in the $1.82?

William B. Shapiro — Chief Executive Officer

No. So because we adjust out-because that’s sort of echo — It’s adjusted out of our adjusted earnings. So it’s included in GAAP, but it’s adjust — It’s taken out of adjusted.

Mike Grondahl — Northland securities — Analyst

Okay, so the $1.82 is sort of clean. It doesn’t include that benefit. Okay, good.

William B. Shapiro — Chief Executive Officer

Yeah

Mike Grondahl — Northland securities — Analyst

Hey, thank you.

William B. Shapiro — Chief Executive Officer

Right, thank you. And Mike, you’ll see a reconciliation of that in the appendix.

Mike Grondahl — Northland securities — Analyst

Ok, Got it.

Operator

Thank you [Operator Instruction] And I am showing no further questions at this time. I’d like to turn the call back to Bill Shapiro for closing remarks.

Bill Shapiro —

Thanks everyone, for attending the call. Appreciate your support.

Operator

[Operator Closing Remarks]

Duration: 27 minutes
Call participants:

Michelle D. Esterman — Chief Financial Officer

William B. Shapiro — Chief Executive Officer

Leon Cooperman — Omega Advisors — Analyst

Mike Grondahl — Northland securities — Analyst

Bill Shapiro —

More ASPS analysis

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So who was asking the questions – Omega Advisors for One…  Let’s Learn a Bit about who Omega Are…

The Securities and Exchange Commission has charged Leon Cooperman of Omega Advisors with insider trading.

The trading involves Atlas Pipeline Partners, according to the SEC complaint.

Cooperman is a hedge fund industry legend and manages Omega, an iconic New York fund with about $5.5 billion in assets.

Here’s what the SEC’s charges are:

  • Cooperman used his status as one of Atlas’ largest shareholders to “gain access to the executive and obtain confidential details about the sale of this substantial company asset.”
  • He and Omega Advisors bought Atlas shares despite explicitly agreeing not to use the information for trading purposes. When Atlas publicly announced the asset sale, its stock price jumped more than 31%.
  • Cooperman tried to cover his tracks, contacting the executive “to fabricate a story to tell if questioned about this trading activity.”

Earlier this year, following notice that Omega was under investigation, Cooperman said he didn’t believe his firm had violated any securities laws.

“In short, I don’t believe the government investigations will have a meaningful impact on our ability to serve you,” Cooperman said during a call with investors in March. “Were I to reach a contrary conclusion, I’d close up shop and give you back your money.” He said at the time he had no plans to do so.

Cooperman is considered a legend in the hedge fund industry and has a rags-to-riches story, growing up in the Bronx as the son of a plumber. Today he is worth $3.1 billion, according to Forbes.

Cooperman wrote a letter to investors on Wednesday, defending himself and saying he had not engaged in improper conduct.

CNBC reports that the SEC reached out to Cooperman for a settlement but he turned it down.

Here is the SEC’s statement:

“The Securities and Exchange Commission today charged hedge fund manager Leon G. Cooperman and his firm Omega Advisors with insider trading based on material nonpublic information he learned in confidence from a corporate executive.

“The SEC alleges that Cooperman generated substantial illicit profits by purchasing securities in Atlas Pipeline Partners (APL) in advance of the sale of its natural gas processing facility in Elk City, Oklahoma. Cooperman allegedly used his status as one of APL’s largest shareholders to gain access to the executive and obtain confidential details about the sale of this substantial company asset. Cooperman and Omega Advisors allegedly accumulated APL securities despite explicitly agreeing not to use the material nonpublic information for trading purposes, and when APL publicly announced the asset sale its stock price jumped more than 31 percent.

“According to the SEC’s complaint, when Omega Advisors received a subpoena nearly a year-and-half later about its trading in APL securities, Cooperman contacted the executive and tried to fabricate a story to tell if questioned about this trading activity. The executive was shocked and angered when he learned that Cooperman traded in advance of the public announcement.

“‘We allege that hedge fund manager Cooperman, who as a large APL shareholder obtained access to confidential corporate information, abused that access by trading on this information,’ said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. ‘By doing so, he allegedly undermined the public confidence in the securities markets and took advantage of other investors who did not have this information.’

“The SEC’s complaint further charges Cooperman with failing to timely report information about holdings and transactions in securities of publicly-traded companies that he beneficially owned, alleging that he violated federal securities laws more than 40 times in this regard.

“The SEC’s complaint was filed in federal district court in Philadelphia and seeks disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions against Cooperman and Omega Advisors as well as an officer-and-director bar against Cooperman.

“The SEC’s investigation was conducted by Brendan P. McGlynn, Oreste P. McClung, Patrick A. McCluskey, and Polly A. Hayes of the Philadelphia Regional Office, and supervised by G. Jeffrey Boujoukos. The litigation will be led by David L. Axelrod and Mark R. Sylvester. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.”

Statement on Leon Cooperman Settling Insider Trading Charges

Stephanie Avakian, Acting Enforcement Division Director

May 18, 2017

“If approved by the court, this settlement protects against future violations while requiring Cooperman and Omega Advisors to pay significant fines for their misconduct.  By imposing an independent consultant to monitor their trading activity, the resolution helps protect our markets from future risk of insider trading.”

* * * * *

TERM SHEET

Hedge fund manager Leon G. Cooperman and his firm Omega Advisors have agreed to settle insider trading charges and beneficial ownership reporting violations by paying nearly $5 million and subjecting themselves to onsite monitoring by an independent compliance consultant with access to their electronic communications and trading records.

The settlement, subject to court approval, would conclude litigation that included a significant ruling in favor of the SEC after the agency filed its complaint against Cooperman and Omega in September 2016.

Monetary Sanctions

Cooperman and Omega agreed to pay:

  • $1,759,049 in disgorgement of ill-gotten gains
  • $429,041in pre-judgment interest
  • $1,759,049 in penalty for the insider trading violation
  • $1,000,000 penalty for the beneficial ownership reporting violations (ordered as to Cooperman only)

Independent Consultant

To guard against insider trading, Cooperman and Omega must retain an onsite independentcompliance consultant until 2022 (unless Omega Advisors ceases to be a registered investment adviser prior to that date). The independent consultant:

  • can access, without prior notice, their electronic communications, trading records, and research
  • will review trades by Cooperman and Omega on an ongoing basis
  • will recommend improvements and conduct training
  • will report to the SEC

Monthly Certifications

  • Cooperman and Omega must make monthly certifications that they were not aware of material nonpublic information prior to any securities trades such that the trades would violate Section 10(b) of the Exchange Act.

Beneficial Ownership

  • Cooperman and Omega shall outsource their required beneficial ownerships filings to a law firm acceptable to the SEC.
  • Omega will conduct training and perform an annual review of Omega’s beneficial ownership reporting policies and procedures.
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