Cleaning Up An Oil Spill Is Insider Trading

oil platform and compliance

Keith A. Seilhan was 20-year employee of BP and a senior responder during the 2010 Deepwater Horizon oil spill. Seilhan directed BP’s oil skimming operations and its efforts to contain the expansion of the oil spill. What he saw scared him so he sold his entire portfolio of BP stock.

The Securities and Exchange Commission charged him with insider trading. The SEC’s view was that he had confidential information about the magnitude of the disaster. BP was telling the public that the spill was only 5,000 barrels of oil per day. Seilhan obtained information that the magnitude of the oil spill and BP’s potential liability and financial exposure, was likely to be greater than had been publicly disclosed. The truth was more than ten times that publicly reported amount.

This case reminded of the railroad case where workers in the railroad yard noticed unusual activity around the railyard and came to the conclusion that the railroad was up for sale. They made a stock bet on their conclusion and won. But the SEC charged them with insider trading, but lost the case.

In the oil case, Seilhan knew the company was lying about the scope of the spill. The information was not publicly available because BP was purposefully deceiving the public and regulators.

You could argue that the information is more like the counting of cars in a retailers parking lot to see how business in doing. Anyone could jump in a plane and see the scope of the oil spill. The news organizations were doing just that. I assume it would take a trained eye to notice that the spill was being misjudged by an order of magnitude.

Regardless of my thoughts about the case, Mr. Seilhan felt it was better to settle the charges than fight the SEC. A month after the trade he received a reminder memo from BP legal to not trade on the stock based on an employee’s possession of price sensitive information. That prohibition was in BP’s code of conduct. Seilhan replied to legal and wanted to discuss his trade, but never followed up or disclosed.

Seilhan agreed to return $105,409 of allegedly ill-gotten gains, plus $13,300 of prejudgment interest, and pay a civil penalty of $105,409.


Image is Thunder Horse Semisub by Andyminicooper