FINRA Plays a Vital Role in Exposing Insider Trading
By Karen Braine, Vice President, Surveillance and Market Intelligence, Insider Trading Detection
FINRA’s Insider Trading Detection Program is designed to provide U.S. law enforcement and regulators worldwide with actionable intelligence about potential insider trading that occurs on the U.S. markets. The intelligence we provide — over 450 referrals in 2023 alone — routinely result in criminal and civil action. Many of the insider trading actions brought by the Securities and Exchange Commission (SEC) and by law enforcement authorities start on the desk of FINRA investigators (or stem from FINRA investigations).
Every day, FINRA’s Insider Trading Detection Program monitors the market for material news events that significantly impact the price of company securities. Stocks, options and bonds for 100% of the U.S. marketplace are surveilled for potential insider trading activity prior to these material news events.
Investigations are conducted using sophisticated analytics that connect trading data and information obtained from public sources as well as from companies and FINRA firms involved in the events leading up to material news announcements. The analytics and the investigative efforts of FINRA’s Insider Trading staff seek to connect individuals and entities trading prior to a material news event to individuals who were aware of the potential event leading up to the news.
BP and TravelCenters Mergers and Acquisition Case
Even the existence of a FINRA insider trading investigation can be enough to generate actionable intelligence. Recently, Tyler Loudon, a 42-year-old Houston man, pled guilty to securities fraud and agreed to forfeit $1.7 million in illegal proceeds he generated from trading TravelCenters Inc. stock.1 Loudon purchased TravelCenters stock based on material, non-public information about a pending merger involving TravelCenters he obtained from his wife, a manager who worked in the mergers and acquisition department of BP, which acquired TravelCenters.
Following the announcement of BP’s acquisition of TravelCenters, which caused an increase of over 70% in TravelCenters’ stock price, FINRA opened an insider trading investigation. We sent information requests to, among others, TravelCenters and BP.
Following our requests to BP and TravelCenters, Tyler Loudon’s wife, a BP manager who worked on the deal, commiserated with a colleague about the scope of FINRA’s request. The BP manager shared this conversation with her husband, and a week later, Loudon confessed to his wife that he had purchased TravelCenters shares prior to the merger news based on information he overheard or that she shared with him (in confidence) about the pending agreement. The BP manager disclosed this information to her supervisor and was placed on administrative leave. She also immediately moved out of the home she shared with Loudon and ceased all contact with him. BP’s outside counsel contacted FINRA Insider Trading staff with the information the BP manager shared about her husband’s trading.
Within a few days of that conversation, FINRA referred Loudon’s trading to the SEC and Federal Bureau of Investigation (FBI), which initiated criminal and civil matters. Loudon now faces up to five years in federal prison in addition to the disgorgement of his $1.7 million in profits realized as a result of his illicit trading. The BP manager initiated divorce proceedings in June 2023.
Loudon, in trading on information he obtained from his wife, violated her trust and broke the law. The SEC2 and FBI3 both kindly acknowledged the assistance of FINRA in their press releases.
Conclusion
Trading on the basis of inside information degrades the markets by allowing those with material, non-public information an advantage over all of the other investors who might have traded based on the same information. FINRA’s Insider Trading Detection Program continues to monitor for cases like Loudon’s and others to ensure that investors enjoy the same opportunities in a secure, fair market.
1 https://www.justice.gov/usao-sdtx/pr/insider-trading-husband-illegally-profits-17m-after-using-wifes-private-company