Former Ontrak CEO Sentenced to Prison for Insider Trading
A former protege of Michael Milken, the infamous junk bond king, has been sentenced to 3-1/2 years in prison for insider trading at a healthcare company he once led. Terren Peizer, 65, the founder and former chief executive of Ontrak, was handed the sentence by US District Judge Dale Fischer in Los Angeles. In addition to the prison term, Peizer was fined $5.25 million and ordered to forfeit over $12.7 million of ill-gotten gains.
Peizer, who plans to appeal the sentence, was found guilty of using a trading plan designed to protect executives against insider trading accusations. This marks the first prosecution based solely on the use of these so-called 10b5-1 trading plans, named after a Securities and Exchange Commission rule.
Insider Trading Allegations
Prosecutors charged Peizer with selling approximately $20 million of Ontrak shares under plans he set up in May and August 2021. The first plan was established shortly after learning about Ontrak’s deteriorating relationship with its largest customer, Cigna. The second plan was put in place just five minutes after receiving information that Cigna was likely to sever ties with the company.
Following the disclosure of the end of the relationship with Cigna, Ontrak’s share price plummeted by more than 44% on Aug. 19, 2021. Peizer was convicted of two counts of insider trading and one count of securities fraud in June last year.
Legal Battle and Sentencing
During the sentencing, prosecutors sought an approximately eight-year prison term, while defense lawyers argued for a significant period of home detention. Peizer’s lawyer, David Willingham of King & Spalding, criticized the outcome as a “true miscarriage of justice,” claiming that Peizer had disclosed his trading plans to Ontrak management and obtained necessary approvals.
Peizer, who worked under Milken at Drexel Burnham Lambert in the 1980s, cooperated in the government’s case against his former boss in exchange for immunity from prosecution. Milken, who pleaded guilty to securities fraud and served about two years in prison, was pardoned by President Trump in February 2020.
