Ontrak Ex-CEO Sentenced to 42 Months for Abusing Trading Plan

Terren Scott Peizer, the former CEO of Ontrak, has been sentenced to 42 months in prison, marking the first-ever prosecution based exclusively on the abuse of Rule 10b5-1 trading plans. These plans are commonly used by thousands of U.S. executives to sell stock in their companies. Peizer was also ordered to pay $17.9 million in fines and restitution. His lawyer has stated that the case will be appealed, arguing that Peizer did not commit insider trading and that the evidence presented at trial supports this claim.

Peizer's legal troubles stem from his actions in the months leading up to the termination of a major client contract with Cigna. Court documents reveal that Peizer was sending increasingly anxious text messages to a confidante and Ontrak executives about the potential loss of Cigna as a client. He was desperate to maintain the relationship, as Ontrak's survival largely depended on it. Peizer's lawyer, David K. Willingham, argued that Peizer fully disclosed his trading plans in advance to his company and got approval from the management and compliance officer beforehand. Willingham described the case as a "true miscarriage of justice" and a "massive overreach" that sets a dangerous precedent.

Peizer's actions involved setting up a Rule 10b5-1 trading plan to sell Ontrak stock just days after expressing his anxiety about the potential loss of Cigna. He initially contacted a broker who required a 30-day cooling-off period, but Peizer balked at this and found another broker who did not require one. Despite being advised that a cooling-off period was industry best practice, Peizer established his trading plan the same day and began selling stock the next business day. Authorities claimed that Peizer falsely certified to Ontrak’s chief financial officer that the plan was not a result of access to material non-public information, even though he knew about the crumbling Cigna deal.

Peizer sold stock throughout the summer under the plan he established in May, making $18.9 million from selling stock between May and late July. On August 13, 2021, Peizer set up a second Rule 10b5-1 trading plan, again alleging he falsely certified to the CFO that the plan was not in response to material non-public information. This plan also did not have a cooling-off period, and Peizer started selling Ontrak stock the next trading day, increasing the number of shares sold daily from 11,000 to 15,000. Between August 16 and August 18, Peizer made about $900,000 selling stock. It wasn't until the next day that the first public disclosure about Cigna came out, causing Ontrak’s stock price to fall 44%.

Peizer avoided $12.5 million in losses because he set up the two trading plans. The case is part of a data-driven initiative by the Department of Justice's criminal fraud division to identify executive abuses of 10b5-1 trading plans. In addition to his prison sentence, Peizer was fined $5.25 million and was required to forfeit more than $12.7 million in ill-gotten gains. U.S. Attorney Bill Essayli for the Central District of California stated that "Insiders must not be allowed to put their thumbs on the scales of the stock market" and that "Individuals who impugn the integrity of our markets can and will face prison time for their crimes."