Insider Trading – A Continuing Focus of SEC Enforcement

Insider trading is a long-standing focus of the Commission. While neither Exchange Act Section 10(b) nor Rule 10b-5 use the phrase “insider trading” that Section and Rule are the weapons used to combat insider trading.

Over time, the courts evolved the elements of what constitutes a claim or cause of action for insider trading. Today the basic elements of a claim are well established, but the idea of what constitutes insider trading continues to evolve. For example, recently the Commission secured a jury verdict in its favor in a case where defendant in the action did not trade in the shares of a stock that was involved in the transaction which was the basis for the Commission to charge Defendant with inside trading. Rather, he purchased shares of a stock that was similar to the one involved in the matter. Thus, when the deal was announced the shares purchased increased in value, similar to those involved in the deal, but not quite as much. The question presented by the case: Is it insider trading when the Defendant did not trade in the shares involved in the deal but only in a stock similar to one involved? Yes said the jury. SEC v. Panuwat, Civil Action 4:21-cv-06322 (N.D. Ca. Verdict April 5, 2024). What constitutes insider trading continues to evolve.

The Commission’s most recent insider trading case was not as difficult to understand, SEC v. Loudon, Civil Action No. 4:24-cv-622 (S.D. Tex.). Named as defendant in this action is Tylor Loudon, a resident of Huston, Texas. The case centered on the acquisition of TravelCenters of America, Inc. in a deal announced on February 16, 2023. The acquiring company was International Oil Company.

Mrs. Loudon was an employee of International Oil Company. In the time leading up to the deal announcement, Defendant Loudon misappropriated inside information about the potential transaction from his spouse. Over time he acquired 46,000 shares of TravelCenters stock. Following the deal announcement, Defendant had illicit profits of $1,760,000.

On March 7, 2024, the court entered a partial judgment against Mr. Loudon. He was permanently enjoined from violating the antifraud provisions of the federal securities laws. The court also imposed an officer/director bar. The judgement deferred the resolution of monetary remedies until a future date.

Subsequently, Defendant consented to the entry of an order directing him to pay disgorgement of $1,760,0000 plus prejudgment interest of $85,600. Those obligations were deemed satisfied by an order of forfeiture entered on May 28, 2024. A penalty was not imposed in view of the term of imprisonment ordered in U.S. v. Loudon, No. 4:24-cr-57 (S.D.Tex.), the parallel criminal case. See Lit. Rel. No. 26013 (May 31, 2024).