In March, Terren Scott Peizer, the former CEO and chairman of Ontrak, a publicly traded health care company based in Nevada, was indicted on charges of insider trading. Peizer, a resident of Puerto Rico and Santa Monica, California, was found guilty by a federal jury in Los Angeles for one count of securities fraud and two counts of insider trading. This case marked the first prosecution by the Justice Department based on Rule 10b5-1, which allows company insiders to establish predetermined plans to sell shares with limits on trading practices.
Peizer violated these limits in 2021 when he set up plans to sell shares after learning that Ontrak’s largest customer was terminating its contract. This news caused the stock price to drop by more than 44%. Deputy Assistant Attorney General Nicole M. Argentieri stated that this case is the first insider trading prosecution based solely on the use of a trading plan, indicating that corporate executives cannot hide behind bad faith established plans.
In response to his conviction, Peizer’s lawyer, David Willingham, stated that they plan to appeal the decision. Willingham argued that Peizer acted in good faith and relied on advice from his management team when establishing the trading plans. Peizer is scheduled to be sentenced in October and faces up to 25 years in prison for securities fraud and up to 20 years for each count of insider trading. Peizer stepped down as CEO in March following his indictment.
