Terren Scott Peizer, the former CEO and chairman of Ontrak, a prominent healthcare company headquartered in Nevada, has been convicted following a federal jury trial in Los Angeles for his role in an insider trading scheme. The verdict includes charges of one count of securities fraud and two counts of insider trading, marking a significant legal milestone as it is the first case prosecuted exclusively under Rule 10b5-1 by the Justice Department.
Rule 10b5-1 allows corporate insiders to establish predetermined trading plans for buying or selling company stock, with safeguards intended to prevent the exploitation of non-public information for personal gain. In Peizer’s case, prosecutors argued that he violated these established limits in 2021 by setting up trading plans to sell shares after learning critical information about Ontrak’s largest customer terminating its contract. This move, if not preemptively traded upon, could have resulted in losses exceeding $12.5 million for Peizer personally. Subsequently, upon the public disclosure of this termination, Ontrak’s stock price plummeted by more than 44%, illustrating the market impact of insider actions.
Deputy Assistant Attorney General Nicole M. Argentieri underscored the Justice Department’s commitment to pursuing cases where trading plans are exploited in bad faith to capitalize on confidential information. The prosecution’s case against Peizer highlighted the department’s vigilance in holding corporate executives accountable for breaching fiduciary responsibilities and undermining market integrity through insider trading practices.
In response to the conviction, Peizer’s defense attorney, David Willingham, announced plans to appeal the decision. Willingham asserted that Peizer acted in good faith, relying on advice from Ontrak’s management team when establishing the trading plans. He criticized the jury’s verdict as unjust, emphasizing Peizer’s innocence and determination to seek overturning of the conviction through the appellate process.
Terren Scott Peizer, aged 64, is scheduled for sentencing in October, facing potential penalties including up to 25 years for securities fraud and up to 20 years for each count of insider trading. His indictment and subsequent resignation as CEO of Ontrak in March highlight the serious legal and reputational consequences associated with insider trading violations in corporate governance. The case serves as a cautionary tale within the business community, reinforcing the imperative of ethical conduct and compliance with securities regulations to uphold investor trust and market credibility.