The former CEO and chairman of Ontrak Inc., a publicly traded health care company based in Miami, Florida, has been sentenced to 42 months in federal prison for insider trading. Terren Scott Peizer, aged 65, was found guilty of engaging in an insider trading scheme using Rule 10b5-1 stock trading plans to avoid losses exceeding $12.5 million.
United States District Judge Dale S. Fischer handed down the sentence, which includes a $5.2 million fine and $12.7 million in restitution payments from Peizer, who resides in Puerto Rico and Santa Monica.
A jury convicted Peizer on one count of securities fraud and two counts of insider trading after a trial concluded in June 2024.
“Terren Peizer betrayed the trust of Ontrak’s investors, trading on inside information to offload company stock before a substantial price decline,” stated Matthew R. Galeotti from the Justice Department’s Criminal Division. He added that the sentence reflects their commitment to prosecuting frauds harmful to American investors.
Bill Essayli, United States Attorney, emphasized that “insiders must not be allowed to put their thumbs on the scales of the stock market,” asserting that individuals undermining market integrity will face imprisonment for their actions.
This case is part of an initiative by the Justice Department’s Criminal Division’s Fraud Section aimed at identifying executive abuses related to Rule 10b5-1 trading plans. While these plans can serve as a defense against insider trading charges under certain conditions, they do not protect executives possessing material non-public information when entering into such plans or if used improperly.
Peizer avoided significant financial losses by initiating two Rule 10b5-1 trading plans while aware that Ontrak’s largest customer might terminate its contract with the company. The first plan was established shortly after learning about potential contract termination risks in May 2021. In August 2021, Peizer set up his second plan just an hour after receiving confirmation from Ontrak’s chief negotiator about likely contract termination.
Despite advice from brokers and legal counsel urging him to observe a “cooling-off” period before selling shares post-plan establishment, Peizer sold stocks immediately following each plan’s initiation. Following his second plan’s adoption on August 19, 2021—six days later—Ontrak announced contract termination by its major customer; subsequently leading to over a 44% drop in its stock price.
The FBI conducted this investigation with considerable support from FINRA’s Criminal Prosecution Assistance Group. The U.S Attorneys Office prosecuted alongside Matthew Reilly from the Justice Department’s Fraud Section while Assistant U.S Attorney Jonathan S Galatzan managed forfeiture proceedings.
