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The former chairman and chief executive of publicly traded healthcare company Ontrak (NASDAQ:OTRK) on Friday was found guilty of a multimillion-dollar insider trading scheme.
A federal jury in Los Angeles convicted Terren Scott Peizer of one count of securities fraud and two counts of insider trading.
It was the first case the Department of Justice prosecuted exclusively based on what is known as Rule 10b5-1, according to a statement. The rule allows company insiders to set up a predetermined plan to sell shares while also setting limits on certain trading practices.
Peizer violated some of those limits when he established plans in 2021 to sell shares to avoid more than $12.5 million in losses, prosecutors claimed. He sold the shares after learning that that Ontrak’s (OTRK) biggest customer at the time was set to ed its contract with the company, according to authorities.
Ontrak’s (OTRK) stock plunged by about 44% after news of the terminated contract became public.
“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,” Deputy Assistant Attorney General Nicole M. Argentieri, who heads the Justice Department’s Criminal Division, said. “We will not let corporate executives who trade on inside information hide behind trading plans they established in bad faith.”
An attorney who represents Peizer said they will appeal, and that testimony showed Peizer didn’t act in bad faith because he set up the trading plans with the advice of his management team, the Associated Press reported.
Sentencing is scheduled for October. Peizer, 64, faces up to 25 years of incarceration for securities fraud and up to 20 years for each count of insider trading. He resigned as CEO in March 2023 after being indicted.