FINRA’s Insider Trading Detection Program continues to play a vital role in assisting law enforcement and regulatory investigations, according to a blog post on the authority’s website.
It was written by Karen Braine, Vice President, Surveillance and Market Intelligence, Insider Trading Detection for FINRA. She leads the team that provides U.S. law enforcement and regulators worldwide with actionable intelligence about potential insider trading that occurs on the U.S. markets.
Braine noted that in 2023 her team’s program provided intelligence resulting in over 450 referrals, and said that this information routinely results in criminal and civil action. FINRA investigations are often the first step toward insider trading actions brought by the SEC and law enforcement authorities, she said.
Braine also discussed the process of how the investigations originate. She said FINRA’s Insider Trading Detection Program monitors the market for material news events that significantly impact the price of company securities, and then watches stocks, options and bonds for potential insider trading activity that may take place prior to these 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,” Braine wrote. “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.”
As an example of her team’s effectiveness, she cited the case of Tyler Loudon, a Houston man recently charged with insider trading ahead of a February 2023 announcement that London-based oil and gas company BP p.l.c. agreed to acquire TravelCenters of America Inc., a full-service truck stop and travel center company. Loudon allegedly made $1.76 million in illegal profits from his trading.
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.
FINRA began an insider trading probe after the announcement of BP’s acquisition of TravelCenters, which caused an increase of over 70% in TravelCenters’ stock price. FINRA 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,” Blaine said. “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 the information to her supervisor, moved out of the home she shared with Loudon, and cut off contact with him. BP’s outside counsel shared the information about the insider trading with FINRA’s team which then referred the case to the SEC and the FBI.
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.
Braine emphasized the importance of FINRA’s Insider Trading Detection Program in ensuring that investors can make their trades in a secure, fair market.
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