The former head honcho of Ontrak Inc., a health care company based out of Miami, Florida, will spend the next 42 months in the clink for insider trading antics. Terren Scott Peizer, the company's erstwhile CEO and chairman, was handed down his sentence after a jury trial last year pegged him on one count of securities fraud and a couple of counts of insider trading. The ruling came from United States District Judge Dale S. Fischer, who also mandated Peizer to cough up a $5.2 million fine alongside restitution north of $12 million.
In a scheme to not legally skirt millions in losses, Peizer maneuvered through Rule 10b5-1 stock trading plans. This little legal loophole typically gives executives a get-out-of-jail-free card against insider trading charges, except, and this is a big except, when you're holding on to some material, non-public information while setting up those plans. The crux of Peizer's downfall was setting up two such plans when he was privy to the fact that Ontrak was about to lose its biggest customer, a move that would send its stock into a nosedive.
Citing a report from the U.S. Attorney's Office, the tale thickens back in May 2021, when Peizer entered into his first 10b5-1 trading plan. He had just learned that Ontrak's relationship with its primary customer was on thin ice. The customer, questioning the value of continuing their contract with Ontrak, was a harbinger of bad news that Peizer chose not to share. Fast forward to August, and reportedly just an hour after getting the inkling that Ontrak was going to get dumped by its customer, Peizer set up his second 10b5-1 plan.
Warnings to impose a "cooling-off" period were blatantly ignored by Peizer, coming from various corners, including brokers, a senior executive at Ontrak, and even legal counsel. He opted, instead, to immediately start offloading Ontrak stock the very next trading day post-plan establishment. Ontrak's stock did a dramatic 44% drop on August 19, 2021, just six days after Peizer secretly secured his August 10b5-1 plan and a short while before the company made it public that they were getting axed by their big client.
The FBI took the reins on the investigation, with significant assistance from the Financial Industry Regulatory Authority’s Criminal Prosecution Assistance Group. As for the courtroom drama, United States Attorney Bill Essayli put it, stating, "Individuals who impugn the integrity of our markets can and will face prison time for their crimes." The sentiments were re-echoed by Matthew R. Galeotti, head honcho at the Justice Department’s Criminal Division, noting Peizer "betrayed the trust of Ontrak's investors, trading on inside information to offload company stock before a substantial price decline."
The case against Peizer was part of an initiative targeting executive misbehavior in 10b5-1 trading plans. The prosecution was a joint adventure between the U.S. Attorney's Office and Matthew Reilly of the Justice Department’s Criminal Division’s Fraud Section, with Assistant United States Attorney Jonathan S. Galatzan handling forfeiture proceedings, according to the U.S. Attorney's Office.
