Former Ontrak CEO Found Guilty of Insider Trading Scheme in Landmark Prosecution

In a landmark ruling, the former CEO and chairman of Ontrak, a health care company based in Nevada, has been found guilty of engaging in an extensive insider trading scheme. The individual, Terren Scott Peizer, a resident of Puerto Rico and Santa Monica, California, was convicted of one count of securities fraud and two counts of insider trading by a federal jury in Los Angeles.

The Justice Department revealed that this case represents the first-ever prosecution solely based on Rule 10b5-1. This rule permits company insiders to establish predetermined plans for selling shares while placing restrictions on certain trading activities. Peizer’s violation of these limits came to light when he devised plans in 2021 to sell shares, aiming to evade over $12.5 million in losses. This decision was made subsequent to learning about the impending contract termination of Ontrak's largest customer, located just outside of Las Vegas. Following the public announcement of this development, Ontrak's stock price plummeted by more than 44%.

Department’s Response

Deputy Assistant Attorney General Nicole M. Argentieri, who heads the Justice Department’s Criminal Division, emphasized, "This is the Justice Department’s first insider trading prosecution based exclusively on the use of a trading plan, but it will not be our last. We will not let corporate executives who trade on inside information hide behind trading plans they established in bad faith."

Legal Defense and Sentencing

Responding to the conviction, Peizer’s legal representative, David Willingham, expressed the intention to file an appeal. Willingham maintained that Peizer's actions were not in bad faith, as he had relied on the advice of his management team when formulating the trading plans. Moreover, Peizer, aged 64, is slated to be sentenced in October. Having resigned as CEO in March after being indicted, he could potentially face a maximum of 25 years in prison for securities fraud and up to 20 years for each count of insider trading.