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Lee Schafer: Trading case tied to former Life Time Fitness exec hits investing neophytes

Lee Schafer, Star Tribune (Minneapolis) on

Published in Home and Consumer News

It's easy to imagine that illegal insider trading is mostly a game played by slick bad guys or aggressive traders who sometimes cross the line.

The story that federal prosecutors tell in the recent indictment of former Life Time Fitness Vice President Shane Fleming and eight others is a lot different. What's striking is the very ordinariness of the people involved. They include a mortgage broker, a real estate agent and an employee of a real estate development company.

The indictment describes them as such novices at this sort of thing that they had to phone up brokerage firms just to ask how listed stock options worked. It's a cautionary tale, if proved in court, about how quick profits can easily tempt unsophisticated people to break the law.

Fleming in early 2015 worked at Life Time, a health and fitness industry leader with revenue in its last full year as a public company of $1.29 billion. The stock of the Chanhassen, Minn.-based company traded on the New York Stock Exchange.

Unbeknown to the market, though, Life Time in the summer of 2014 had received an unsolicited letter proposing an acquisition, kicking off a process that resulted in the company eventually getting acquired by private equity investors.

Fleming, now 54, was described in the federal indictment as a vice president in sales. His attorney, with the firm Perkins Coie in Arizona, declined to comment on the indictment and related SEC charges. What we know, however, is that he wasn't one of the top executive officers of the company, so he wouldn't likely have been at the negotiating table with partners of a private equity fund.

As alleged in the federal documents, Fleming only found out that a potential going-private transaction was in the works in February 2015. Prosecutors say he was also warned he had a duty to not say anything about the acquisition and to not trade on the information. Instead, the federal authorities say, he shared the news with an old friend and partner in an online advertising business, identified in the indictment as Bret Beshey.

Beshey, who did not yet have legal counsel named in federal court filings, allegedly shared the information with his girlfriend. She in turn had an old friend going back to the 1980s, now self-employed in the garbage removal business in western New York. This old friend was soon in the loop as well, according to the indictment, being assured that the information had come straight from an executive at Life Time.

What's interesting about the story, as alleged in the federal documents, is that these people were not sophisticated securities traders. They didn't know for sure how to go about making a lot of money in a hurry even with the knowledge that Life Time was about to be taken over.

The SEC complaint quoted from a call Beshey placed to a brokerage firm about buying some call options in advance of a company takeover that included, in part, his simple plea for an explanation.


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