Texas Man Made $1.76 Million from Insider Trading | April 2024
April 2024 | Volume 15, Issue 9
Read the full article from CBS News.
According to the article, a man from Houston overheard his work-from-home spouse talking business and used that information to make over $1.7 million in an insider trading scheme, federal authorities said.
Tyler Loudon, 42, recently pleaded guilty to securities fraud for buying and selling stocks based on details gleaned from his wife's business conversations while both were working from home. He made $1.7 million in profits from the deal, but has agreed to forfeit those gains, the Justice Department announced in a news release.
"Mr. Loudon made a serious error in judgment, which he deeply regrets and has taken full responsibility for," his attorney Peter Zeidenberg said in a statement to the media.
Remote Work
Things might have turned out differently had Loudon or his wife decided to work from, well, the office.
Loudon's wife worked as a mergers and acquisition manager at the London-based oil and gas conglomerate BP. So, when Loudon overheard details of a BP plan to acquire TravelCenters, a truck stop and travel center company based in Ohio, he smelled profit. He bought more than 46,000 shares of the truck stop company before the merger was announced on February 16, 2023, at which point the stock soared almost 71 percent, according to the Securities and Exchange Commission.
Louden then allegedly sold the stock immediately for a gain of $1.76 million. His spouse was unaware of his activity, according to the U.S. Attorney's Office for the Southern District of Texas.
Potential Punishment
Loudon will be sentenced on May 17, when he faces up to five years in federal prison and a possible fine of up to $250,000, according to the U.S. Attorney's Office. He may also owe a fine in addition to other penalties in order to resolve a separate and still pending civil case brought by the SEC.
“We allege that Mr. Loudon took advantage of his remote working conditions and his wife's trust to profit from information he knew was confidential,” said Eric Werner, regional director of the SEC's Fort Worth regional office. “The SEC remains committed to prosecuting such malfeasance.”
Discussion Questions
- Define insider trading
Insider trading is the trading of a public company’s stock or other securities, such as bonds or stock options, based on material, nonpublic information about the company. In the United States, insider trading is classified as a white-collar crime. - What is securities fraud?
Securities fraud is generally defined as an illegal and/or unethical activity carried out involving securities or asset markets to profit at the expense of others. Securities fraud includes illegal trading on insider information. - Insider trading is a white-collar crime, and a crime is defined as a “wrong against society as a whole.” Explain why insider trading constitutes a wrong against society. If you were in Mr. Loudon’s situation, would you be tempted to do the same thing he did? Explain your response.
Insider trading constitutes a wrong against society because it arguably undermines public trust in a “level playing field” when buying and selling securities. As the argument goes, the public may lose faith in the securities markets if ordinary investors are not confident that they have the same or similar access to information regarding companies that executives and other insiders do, information that can be crucial to making a reasoned investment decision.
There has long been debate among business and legal scholars regarding whether insider trading should be illegal. Several arguments against outlawing insider trading have been identified; for example, although insider trading is illegal, most insider trading is never detected by law enforcement, and thus the illegality of insider trading might give the public the potentially misleading impression that “stock market trading is an unrigged game that anyone can play.” Some legal analysis has questioned whether insider trading harms anyone in the legal sense, since some have questioned whether insider trading causes anyone to suffer an actual "loss" and whether anyone who suffers a loss is owed an actual legal duty by the insiders in question.
In your author’s opinion, the arguments for outlawing insider trading significantly outweigh the arguments against it, primarily based on the notion that trading on insider information is not fair to ordinary (i.e., “outside”) investors, and since the realization that the “game” (securities trading) is indeed “rigged” could undermine confidence in the securities markets, which constitute one of the key foundations to the U.S. and global economies.