LA federal jury convicts Ontrak founder in historic insider trading prosecution
Terren Peizer is the first executive of a publicly traded company to be prosecuted for insider trading based on his Rule 10b5-1 plans.
A federal jury convicted on Friday former Ontrak Inc. CEO Terren Peizer of three felonies for dumping company stock in an insider trading scheme aimed at avoiding more than $12.5 million in losses.
Peizer is the first to be prosecuted for insider trading based on his Rule 10b5-1 plans, which The Wall Street Journal describes as “a safe harbor executives have enjoyed for 25 years to protect against insider-trading charges” that involves committing to selling in the future “regardless of market events.”
In Peizer’s case, prosecutors argued he knew full well that Ontrak was going to lose Cigna as its largest health insurance customer when he committed to shedding himself of Ontrak shares in two Rule 10b5-1 filings in May and August 2021.
“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 a press release from the U.S. Attorney’s Office for the Central District of California. “Instead, Peizer began selling shares of Ontrak on the next trading day after establishing each plan. On August 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%.”
Peizer’s defense centered on advice he received from Ontrak’s chief financial officer. His lead lawyer, David K. Willingham of King & Spalding LLP, also hoped jurors could dismiss comments presented by prosecutors as incriminating as Peizer simply using “emotion to push buttons and motivate the people who work there.”
“Ladies and gentlemen, his personality, the way he manages those people, is not on trial,” Willingham said in his opening statement.
The comments apparently include, according to Assistant U.S. Attorney Della G. Sentilles’ opening statement, Peizer comparing Ontak’s potential loss of Cigna to “a baby losing its care from chemotherapy.”
Sentilles is prosecuting Peizer with Assistant U.S. Attorneys Ali Moghaddas and Matthew S. Reilly.
You can read the prosecution’s trial memo here.
I didn’t see as much of the trial as I intended because I went to the National Football League trial instead, but I do know Peizer had many supporters in court. James Bergerner, also known as Sweet James the billboard lawyer, was in the gallery for opening statements, and several supporters were sitting on the floor when I walked in because they refused to sit on the government’s “side” of the courtroom, which was the only side with open seats.
I wasn’t in court for Friday’s verdict so I don’t know how many saw him get convicted, but his supporters will have a chance to weigh in through character reference letters ahead of Peizer’s sentencing, which Senior U.S. District Judge Dale S. Fischer scheduled for Oct. 21.
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