June 23, 2024 – LOS ANGELES, CA – The former CEO and chairman of the board of directors of Ontrak Inc., a Henderson, Nevada-based 
publicly traded health care company, was found guilty by a jury on Friday of engaging in an insider trading scheme, using Rule 10b5-1 plans, to avoid losses of more than $12.5 million.
Terren Scott Peizer, 64, a resident of Puerto Rico and Santa Monica, was found guilty of one count of securities fraud and two counts of insider trading.
“Corporate executives and other insiders hold major power in our economy, but with that power comes responsibility,” said United States Attorney Martin Estrada. “It is important that executives, such as this defendant, be held accountable when they line their own pockets at the expense of shareholders. That is why I created our office’s Corporate and Securities Fraud Strike Force. Today’s verdict sends a clear message that everyone, including corporate executives, must abide by the law.”
“When Terren Peizer learned significant negative news about Ontrak, he set up Rule 10b5-1 trading plans to sell shares before the news became public and to conceal that he was trading on inside information,” said Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division. “With today’s verdict, the jury convicted Peizer of insider trading. 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.”
According to evidence presented at a 10-day trial, Peizer avoided losses of approximately $12.5 million by entering into two Rule 10b5-1 trading plans while in possession of material, non-public information concerning the serious risk that Ontrak’s then-largest customer would terminate its contract.
In May 2021, Peizer entered into his first 10b5-1 trading plan shortly after learning that the relationship between Ontrak and the customer was deteriorating and that the customer had expressed serious reservations about continuing its contract with Ontrak. Peizer later learned that the customer informed Ontrak of its intent to terminate the contract. Then, in August 2021, Peizer entered into his second 10b5-1 trading plan approximately one hour after Ontrak’s chief negotiator for the contract confirmed to Peizer that the contract likely would be terminated.
In establishing his 10b5-1 plans, Peizer refused to engage in any “cooling-off” period—the time between when he entered into the plan and when he sold stock—despite warnings from two brokers, a senior Ontrak executive, and attorneys. Instead, Peizer began selling shares of Ontrak on the next trading day after establishing each plan. On August 19, 2021, just six days after Peizer adopted his August 10b5-1 plan, Ontrak announced that the customer had terminated its contract and Ontrak’s stock price declined by more than 44%.
“As a CEO, Mr. Peizer abdicated his responsibilities by using his position to conceal trading on material non-public information in order to avoid the losses shareholders suffered,” said Acting Assistant Director in Charge Krysti Hawkins of the FBI Los Angeles Field Office. “The FBI is committed to investigating illegal trading practices and holding offenders accountable in order to ensure fairness and trust in the marketplace.”
United States District Judge Dale S. Fischer scheduled an October 21 sentencing hearing, at which time Peizer will face a statutory maximum penalty of 25 years in prison on the securities fraud count and up to 20 years in prison on each of the insider trading counts.
The case is part of a data-driven initiative led by the Criminal Division’s Fraud Section to identify executive abuses of 10b5-1 trading plans. Rule 10b5-1 trading plans can offer an executive a defense to insider trading charges. However, the defense is unavailable if the executive is in possession of material, non-public information at the time he or she enters into the 10b5-1 trading plan. Additionally, a plan does not protect an executive if the trading plan was not entered into in good faith or was entered into as part of an effort or scheme to evade the prohibitions of Rule 10b5-1.
The Corporate and Securities Fraud Strike Force is designed to expand and prioritize complex corporate and securities fraud investigations, some of which involve corporate executives and other individuals involved in criminal conduct. Members of the Strike Force examine accounting fraud, insider trading, and other matters that directly impact the financial system and trading markets.
The FBI investigated the case, with substantial assistance from FINRA’s Criminal Prosecution Assistance Group.
Assistant United States Attorney Ali Moghaddas of the Corporate and Securities Fraud Strike Force and Trial Attorneys Matthew Reilly and Della Sentilles of the Justice Department’s Criminal Division’s Fraud Section are prosecuting this case.
Source: DOJ Release
