Imagine a CEO dodging millions in losses by selling stock just before a catastrophic announcement—now, that’s a prison sentence waiting to happen.
According to Yahoo! Finance, former Ontrak CEO Terren Scott Peizer has been sentenced to 42 months in prison and ordered to pay $17.9 million in fines and restitution for insider trading, marking the first criminal conviction tied solely to the misuse of Rule 10b5-1 trading plans.
Peizer, 65, founded Ontrak, a Miami-based behavioral health provider, in 2003. As CEO, he built a company reliant on major clients like Aetna and Cigna. But trouble brewed when Aetna terminated its contract, announced in a March 2021 press release, slashing Peizer’s personal wealth by $265 million as Ontrak’s stock plummeted.
After stepping down as CEO in April 2021, Peizer stayed on as executive chairman. He remained deeply involved, texting Ontrak’s new CEO regularly, desperate to secure a deal with Cigna.
By late March 2021, warning signs emerged. A text hinted at widespread concern about Cigna, and an email copied Peizer detailed budget overruns and questioned Ontrak’s cost calculations.
On May 1, 2021, Peizer texted a consultant, calling the Cigna situation a “nightmare.” He saw eerie parallels to the Aetna debacle. Desperation was setting in.
Just days later, on May 4, 2021, Peizer began exploring ways to offload his Ontrak shares. He contacted a broker to establish a Rule 10b5-1 trading plan, meant to allow executives to sell stock without insider trading accusations.
The first broker insisted on a 30-day cooling-off period, a safeguard against impropriety, but Peizer refused. He found a second broker willing to skip this “industry best practice,” as noted in a May 10, 2021, email from an employee.
On May 10, 2021, Peizer set up his first trading plan and began selling shares the next business day. Authorities allege he falsely assured Ontrak’s CFO that no material nonpublic information influenced this move, despite knowing Cigna’s deal was shaky.
Between May and late July 2021, Peizer pocketed $18.9 million from stock sales under this plan. Meanwhile, on May 18, 2021, Cigna formally notified Ontrak of its intent to terminate by year’s end. By July 20, 2021, Peizer was still texting consultants, fixated on saving Cigna, pleading, “We just need to save [them].” On August 13, 2021, a call with Ontrak’s senior vice president confirmed Cigna’s likely exit.
Within an hour of that call, Peizer set up a second Rule 10b5-1 plan, again without a cooling-off period. From August 16 to 18, 2021, he made about $900,000, ramping up daily sales. This timing raised red flags.
On August 19, 2021, Ontrak publicly disclosed Cigna’s termination in a filing, and the stock price cratered 44%. Peizer had avoided $12.5 million in losses by selling early, per authorities.
This case, the first of its kind, targets the abuse of Rule 10b5-1 plans, used by thousands of U.S. executives for equity compensation. The DOJ’s data-driven initiative signals more scrutiny ahead, while the SEC’s 2022 rule amendments now mandate cooling-off periods and good faith.
For investors, this is a wake-up call: insider trading isn’t just a Wall Street movie plot—it’s a real risk. Scrutinize executive trades in your portfolio companies. Use tools like SEC filings to track Form 4 sales, and demand transparency on trading plans to protect your wealth.