The emergence of hybrid working models in the corporate sector has undoubtedly brought numerous benefits, yet it also introduces significant challenges for both employees and companies. One pressing issue is the safeguarding of sensitive information. While many focus on cyber threats associated with remote devices, recent developments reveal that dangers can also stem from within one’s home setting.
In a startling incident from the United States, Tyler Loudon, husband of a BP mergers and acquisitions executive, received a hefty penalty of $1,845,600.06 due to insider trading violations.
This case, initiated in February 2024, saw the Securities and Exchange Commission (SEC) charge Loudon with illegal trading activities. Allegations stated that he eavesdropped on conversations about BP’s plans to acquire TravelCenters of America Inc., leveraging that information to reap profits of $1.76 million (£1.34 million) by trading shares of the target company. The acquisition was reportedly valued at $1.3 billion.
Loudon’s actions went beyond passive eavesdropping; he is accused of accessing his wife’s laptop and email without consent. He purchased approximately 46,000 shares of TravelCenters right before the public announcement in February 2023. Following the stock’s surge of nearly 71%, he promptly sold his shares, netting significant profits. Upon discovering the trades, his wife alerted BP, resulting in her termination despite no evidence of her knowingly leaking information.
The SEC’s report indicated that “Loudon knew, or was severely reckless in not knowing, that information regarding potential BP deals, including the acquisition of TravelCenters, was material, non-public information that he had a duty to keep confidential.” [1]
Facing the charges, Loudon did not dispute the allegations and agreed to a penalty of $1.76 million, also pleading guilty to securities fraud.
On May 28, 2024, the court mandated Loudon to pay a total of $1,760,000 plus interest amounting to $85,600.06. Concurrently, he faced criminal proceedings that sentenced him to two years in federal prison along with a $10,000 fine.
Understanding Insider Trading in the UK
While Loudon’s case falls under U.S. jurisdiction, it draws attention to the implications of insider trading laws in England and Wales, where such violations can result in severe repercussions.
Under UK law, particularly section 52 of the Criminal Justice Act 1993 and the EU Market Abuse Regulation (UK MAR), insider trading is criminalized. It applies if an individual:
- Holds inside information and trades in affected securities on a regulated market,
- Encourages another to trade based on insider information, or
- Discloses non-public information outside the bounds of their professional responsibilities.
Article 8(1) of UK MAR defines civil insider trading; it occurs when an individual who possesses inside information uses it to trade financial instruments, whether for their own account or a third party’s.
“Inside information,” as clarified in Article 7 of UK MAR, refers to precise, non-public information that pertains to specific issuers or financial instruments and could significantly influence their market prices if disclosed.
The FCA Handbook offers additional insights concerning insider trading behaviors that may be deemed illegal. Breaches can lead to stringent penalties, with the Criminal Justice Act carrying the threat of unlimited fines and/or imprisonment (section 61).
Commentary on Insider Trading Risks in Hybrid Workspaces
With hybrid work becoming commonplace, companies must understand and tackle the emerging risks. The Loudon case underscores the vulnerabilities that arise when people share workspaces at home, potentially exchanging sensitive information unknowingly. Here are strategies to mitigate insider trading risks in hybrid environments:
- Organizations are implementing training programs and policies aimed at preventing insider trading, especially in light of changes brought by the pandemic. The FCA emphasizes the need for robust compliance measures to ensure current legal adherence. Regular updates to training and policies are crucial.
- It’s important for employees to realize that market abuse laws extend beyond the financial sector.
- All individuals must adhere to insider trading regulations. Anyone in possession of insider information who engages in trading is committing market abuse.
- Clearly, individuals must refrain from utilizing insider information gained from household members for personal benefit. Although confidentiality may be harder to uphold in a hybrid model, identifying insiders who misuse information remains straightforward.
Incidents like Loudon are not isolated. The SEC has pursued numerous cases involving relatives or acquaintances engaging in insider trading based on unintended overheard conversations during remote work, suggesting a vigilant watch from regulatory bodies as hybrid working persists in the UK.
[1] SEC Civil Action No. 24-cv-622 [10]. Link to complaint can be found here.
[2] Market Abuse Regulation – Financial Conduct Authority
[3] See section 123(2), section 381 and sections 55J and 55Q of the Financial Services and Markets Act 2000.
[4] Market abuse in a time of coronavirus – Financial Conduct Authority
This publication provides a general overview of the law and should not replace tailored legal advice.
© Farrer & Co LLP, September 2024
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