Santa Monica CEO Guilty In $12.5M Insider Trading Scheme

LOS ANGELES, CA — A Santa Monica man who was the chief executive of a publicly traded health care company was found guilty Friday by a jury in downtown Los Angeles of using insider information to avoid losses of more than $12.5 million.

Terren S. Peizer, 64, who also lived in Puerto Rico, was convicted of one count of securities fraud and two counts of insider trading, according to the U.S. Department of Justice.

Peizer was the CEO and chairman of the board of directors of Ontrak Inc., a Henderson, Nevada-based publicly traded health care company.

According to evidence presented at a 10-day trial, Peizer avoided losses by entering into two Rule 10b5-1 trading plans while in possession of non-public information concerning the serious risk that Ontrak's then-largest customer would terminate its contract.

Rule 10b5-1 trading plans allow executives to safely sell stock without risking accusations of benefiting from inside information. However, the defense is unavailable if the executive is in possession of non-public information at the time the trading plan is set up.

"When Terren Peizer learned significant negative news about Ontrak, he set up Rule 10b5-1 trading plans to sell shares before the news became public and to conceal that he was trading on inside information," Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the DOJ's Criminal Division, said in a statement.

"With today's verdict, the jury convicted Peizer of insider trading. 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. We will not let corporate executives who trade on inside information hide behind trading plans they established in bad faith."

In establishing his 10b5-1 plans, Peizer refused to engage in any "cooling-off" period -- the time between when he entered into the plan and when he sold stock -- despite warnings from two brokers, a senior Ontrak executive, and attorneys, according to evidence presented in L.A. federal court.

Instead, Peizer began selling shares of Ontrak on the next trading day after establishing each plan. On Aug. 19, 2021, just six days after Peizer adopted his August 10b5-1 plan, Ontrak announced that the customer had terminated its contract and Ontrak's stock price declined by more than 44%, the DOJ said.

U.S. District Judge Dale S. Fischer scheduled an Oct. 21 sentencing hearing, at which time Peizer will face up to 25 years in prison on the securities fraud count and up to 20 years on each of the insider trading counts, federal prosecutors said.

City News Service