As we previously reported in March 2020, the implementation of remote work policies heightens the risk of misappropriation of trade secrets in remote work environments and could require businesses to take additional steps to ensure the security of their trade secrets and confidential information. In the last few years, the Securities and Exchange Commission (“SEC”) has charged several individuals with insider trading after they misappropriated material, nonpublic information obtained as a result of their remote work environment.[1] Most recently, a man was charged with insider trading after misappropriating trade secrets he obtained by listening to his wife’s[2] business calls while the two worked from home.
On February 22, 2024, the SEC announced that it charged Tyler Loudon of Houston, Texas, with insider trading in connection with oil and gas company BP p.l.c.’s (“BP”) agreement to acquire TravelCenters of America Inc. (“TA”), a truck stop and travel center company. During the BP-TA deal, Loudon’s wife worked as a BP mergers and acquisitions manager. The SEC alleges Loudon misappropriated material, nonpublic information by taking advantage of his wife’s remote work on the BP-TA deal.
In particular, the SEC alleges that shortly after BP submitted an initial offer to acquire TA for $60 per share in December 2022, Loudon began purchasing shares of TA stock, going so far as to sell all other positions in his individual brokerage account and his Roth IRA, to fund approximately $2.16 million in TA share purchases. By February 15, 2023, TA’s share price closed at $49.94, and Loudon had accumulated 46,450 shares of TA stock worth approximately $1.82 million. The next day, on February 16, 2023, TA publicly announced it agreed to be acquired by BP for $86 per share in cash, causing its share price to jump 70.8 percent to $84.43. Loudon immediately liquidated all of his TA holdings for a profit of $1.76 million. At no point did he tell his wife about his purchases or sales of TA stock.
By late March 2023, the Financial Industry Regulatory Authority (FINRA) requested BP provide a deal chronology, including the names of those who were “in the know” before the acquisition. Loudon’s wife told Loudon that BP’s lawyers requested personal information from a former employee who worked on the deal. Loudon asked if current employees would receive the same scrutiny, and his wife confirmed that they would. Loudon confessed to her that he traded in TA’s stock prior to the acquisition announcement, and she reported this to her supervisor at BP. BP subsequently placed her on administrative leave and investigated her emails and texts. Although BP found no evidence that she intentionally leaked the acquisition to Loudon or knew of his trades, BP terminated her employment.
During this time, Loudon and his wife worked at home within 20 feet of each other, and they frequently overheard and witnessed each other’s work conversations and meetings, including his wife’s work discussions related to the deal. Loudon’s wife also admitted that the two discussed aspects of the acquisition during the normal course of marital communications. The SEC’s complaint alleges that “Loudon knew, or was severely reckless in not knowing, that information regarding potential BP deals, including the acquisition of TA, was material, nonpublic information that he had a duty to keep confidential.” Without denying the allegations, Loudon consented to the entry of a partial judgment. Subject to court approval, Loudon would be banned from taking company leadership roles and ordered to pay disgorgement with prejudgment interest and a civil penalty in amounts to be determined by the Court.
On the same day as the SEC’s press release, the U.S. Attorney’s Office for the Southern District of Texas also announced in a press release that Loudon pleaded guilty to securities fraud in a parallel action. Loudon entered a plea agreement, agreeing to forfeit the realized profit of $1.76 million. However, Loudon still faces up to five years in federal prison and a possible $250,000 maximum fine.
We have previously outlined potential steps to protect trade secrets in a remote working environment. One of these steps, reinforced by the Louden case, is to remind remote employees to be vigilant in not inadvertently giving others access to company confidential information, including those who do not seem to present a realistic risk of misappropriation (e.g., a friend, family member, or in Loudon’s case, a spouse). Although stay-at-home orders have since been lifted, it remains important for businesses offering hybrid or fully remote work options to take all reasonable measures to address the security of their trade secrets and confidential information to reduce the risk of misappropriation. Businesses should consult with legal counsel to assess the reasonable steps necessary to maintain the security of its trade secrets in this era of hybrid and remote work environments.
FOOTNOTES
[1] See SEC v. Meadow, 23-cv-05573 (S.D.N.Y. 2023); SEC v. Markin, 1:22-cv-06276 (S.D.N.Y. 2022).
[2] While Loudon and his wife were married at the time of these events, Loudon’s wife initiated divorce proceedings in June 2023.