Love and deceit: When work-from-home spawns insider trading

There is a rich history in securities fraud of pillow talk cases, in which insider traders glean confidential information from romantic partners. (Illustration: WSJ)
There is a rich history in securities fraud of pillow talk cases, in which insider traders glean confidential information from romantic partners. (Illustration: WSJ)

Summary

Lawyers say the Covid era offers a new twist to ‘pillow talk’ cases.

Steven Teixeira’s use of his girlfriend’s laptop began innocently enough when she asked him to keep an eye on her work email while she went to fitness classes and ran errands.

As they weathered the pandemic from their apartment in Queens, N.Y., he gave in to temptation. His sweetheart worked as an executive assistant at Morgan Stanley, and her calendar invites included meetings about planned mergers and acquisitions that involved the investment bank.

Teixeira, a compliance executive at a payment-processing company whom she intended to marry, used the information to trade in advance of the deals. It netted him thousands in profits, promises of Rolex watches from friends he tipped off, and the scrutiny of federal officials probing insider trading. He pleaded guilty to a dozen fraud charges in June.

There is a rich history in securities fraud of “pillow talk" cases, in which insider traders glean confidential information from romantic partners. The Covid era offered a twist: Secrets weren’t spilled in the bedroom or over a bottle of wine, but during the humdrum routine of two adults working from home.

“During Covid, there was an uptick in brazen conduct," said Edward Imperatore, a defense lawyer at law firm Morrison & Foerster. “In a work-from-home environment, people acted with more impunity."

Another recent case snared a boyfriend who was training to work for the Federal Bureau of Investigation. Seth Markin pleaded guilty in December to trading on information he purloined from his lawyer girlfriend, an associate in the Washington office of law firm Covington & Burling.

In 2021, she was working on a pharmaceutical acquisition from her one-bedroom apartment, where Markin spent days at a time. According to prosecutors, she trusted him because he told her he had a security clearance, was going to be an FBI agent, and wanted to marry her.

Prosecutors said Markin passed on tips that led to at least 20 people trading based on confidential information. “I knew that my behavior was wrong," Markin told the judge during his plea hearing. He is scheduled to be sentenced in March.

Representatives for the FBI and Covington declined to comment.

In Teixeira’s case, he was aided by a mouse-jiggler he bought that ensured his girlfriend’s laptop wouldn’t lock when she wasn’t using it, according to court documents. He has been cooperating with prosecutors and is scheduled to testify this year at the trial of his former friend, Jordan Meadow, who at the time was a stockbroker with Spartan Capital Securities. Meadow made more than $700,000 trading on Teixeira’s information and used the tips to advise clients who made millions, prosecutors allege.

“Yo you see UFS," Meadow texted Teixeira, referencing the stock symbol of a company involved in a $3 billion deal, according to the indictment. He then asked for more non-public information, texting, “Feed me."

Meadow has pleaded not guilty to the eight charges he is facing. Lawyers for Meadow and Spartan declined to comment, as did a spokeswoman for Morgan Stanley, and a lawyer for Teixeira didn’t respond to requests for comment.

In 2022, the Securities and Exchange Commission settled with a New Jersey man who it accused of illegally trading on inside information he heard when his domestic partner, who worked in marketing for an IT company, participated in calls from home, including an 11:30 p.m. videoconference in a home-office adjacent to their bedroom. Although he typically discussed his trades with her, in this case he hid them, executing the transactions from his work office, the SEC said. The man, who didn’t admit wrongdoing, paid $180,000.

One thing hasn’t changed since the earliest days of pillow talk: It is usually the men who can’t resist the urge to take advantage of their confidential information.

“Insider trading is an equal opportunity crime," said Dixie Johnson, a partner at law firm King & Spalding who advises companies on how to avoid such situations. “But the cases we see usually have involved men doing the trading."

Not that female romantic partners have always been innocent bystanders. In 2002, adult-movie actress Kathryn Gannon, known on screen as Marylin Star, pleaded guilty to trading on tips from an investment bank CEO with whom she was having an affair. She was sentenced to three months in prison.

A decade later, former beauty queen turned hedge-fund consultant Danielle Chiesi pleaded guilty to securities fraud for her role in a sprawling insider-trading ring. In a sentencing submission, she blamed a toxic relationship with her boss—and lover of 20 years—who urged her to get inside information.

One challenge for prosecutors is determining whether the partner who is privy to the information was in on the crime, said former federal prosecutor Brendan Quigley.

“Do they say, ‘Oh, my God, I would never give information to my spouse or significant other?’ It depends not only on what actually happened, but also on the nature of their relationship," said Quigley, who prosecuted insider-trading cases in Manhattan.

For defense lawyers, pillow-talk cases can be difficult to handle at trial, particularly if one partner testifies against another. “To a juror, this is the bad boyfriend," said Imperatore, the defense attorney.  “He’s acting badly in a relationship in a way that goes beyond the four corners of insider trading."

Not surprisingly, many such relationships don’t survive. Teixeira and his girlfriend split up, as did Markin and his.

Former Playboy CEO Christie Hefner and her husband, William Marovitz, divorced about a year after the SEC accused him of illegally trading Playboy stock based on information gleaned from his wife—despite her explicit instructions not to. Marovitz didn’t admit wrongdoing in a 2011 settlement.

One woman whose husband recently settled insider-trading charges involving confidential information related to her employer said coping with the allegations strengthened their bond.

“It felt like an injustice," said the woman, who wasn’t identified in court papers. “It brought us closer together."

Write to Corinne Ramey at corinne.ramey@wsj.com

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