July 2, 2023

DOJ announces the conviction of former Ontrak CEO for insider trading

A federal jury in California recently convicted Terren Peizer, the former CEO of publicly traded healthcare company Ontrak Inc., for insider trading using Rule 10b5-1 trading plans, a predetermined plan that allows corporate insiders of publicly traded companies to sell their company stock.  Rule 10b5-1 trading plans serve as a defense to insider trading for executives that use them as long as they are formed in good faith and, as in the current case, not by an executive in possession of material nonpublic information (“MNPI”).  The Department of Justice reports that this was its first insider trading prosecution based exclusively on the use of a Rule 10b5-1 trading plan.  A Department spokesperson also emphasized that the DOJ will continue to prosecute corporate executives who trade on inside information while hiding behind trading plans that were established in bad faith.  More specifically, Peizer was convicted by a federal jury of one count of securities fraud and two counts of insider trading.  He is currently scheduled to be sentenced on October 21, 2024.

According to court documents and evidence presented at trial, Peizer avoided more than $12.5 million in losses by using two Rule 10b5-1 trading plans.  Peizer reportedly entered into the first trading plan in May 2021 while serving as Ontrak’s CEO.  The first trading plan was allegedly established shortly after Peizer learned that there was a “serious risk” to a contract with one of Ontrak’s largest customers.  The second trading plan was established by Peizer in August 2021, only minutes after Ontrak’s chief negotiator allegedly informed Peizer that the customer would likely terminate the contract.  According to the DOJ, just six days after the second trading plan was formed, Ontrak publicly announced that the customer’s contract was terminated causing Ontrak’s stock price to decline by more than 44 percent.  Federal prosecutors further alleged that Peizer traded company stock shortly after establishing the trading plans and refused to engage in a “cooling off period” despite warnings to do so by multiple brokers, attorneys and Ontrak’s Insider Trading Compliance Officer.

DOJ Press Release | First Superseding Indictment