Former CEO Sentenced for Insider Trading
Terren Peizer, the former CEO of Ontrak and a protégé of Michael Milken, was sentenced to 3-1/2 years in prison on Monday for insider trading. This trading involved a healthcare company that he previously led and was based on a trading plan that was intended to protect executives from such legal issues.
At the sentencing, US District Judge Dale Fischer, located in Los Angeles, not only imposed the prison term but also a fine of $5.25 million, along with the forfeiture of gains exceeding $12.7 million.
According to his attorney, David Willingham, Peizer plans to appeal the decision.
Prosecutors highlighted that Peizer utilized a so-called 10B5-1 trading plan, which is named after the Securities and Exchange Commission rules, allowing insiders at public companies to sell their shares at predetermined times, ideally avoiding the fallout from negative news.
Peizer faced charges for allegedly sidestepping losses by selling around $20 million in Ontrak shares, using plans that were initially set for May and August of 2021. This came about when indications arose regarding worsening relations between Ontrak and its primary customer, Cigna.
Interestingly, Peizer established the first trading plan just after reports hinted at this deteriorating relationship and then created another one shortly after Cigna learned it might end the partnership.
The stock value of Ontrak plummeted over 44% on August 19, 2021, following the company’s announcement about the terminated relationship with Cigna.
Peizer was found guilty in June of the previous year on two counts of insider trading and one count of securities fraud. Prosecutors had recommended a sentence of around eight years, in contrast to the defense’s appeal for a more lenient outcome focused on family circumstances.
Willingham described the verdict as a “true miscarriage of justice,” asserting that Peizer disclosed the trading plan and followed all required protocols.
He criticized the legal proceedings as a misuse of taxpayer resources and expressed concern it sets a dangerous precedent regarding the interpretation of material, non-public information. He emphasized that efforts to clear Peizer’s name and restore his reputation will continue.
Throughout the 1980s, Peizer worked alongside Milken at Drexel Burnham Lambert. In a noteworthy turn, he cooperated with authorities during a criminal investigation into Milken, which resulted in Milken pleading guilty to securities fraud and serving about two years in prison before being pardoned by President Trump in February 2020.
