The SEC has charged Terren S. Peizer, the Executive Chairman of Ontrak Inc., a healthcare treatment company based in Santa Monica, California, with insider trading. Peizer is accused of selling over $20 million of Ontrak stock between May and August 2021, while in possession of material nonpublic negative information related to the company’s largest customer.
Rule 10b5-1 Plan
Peizer established a Rule 10b5-1 trading plan in May 2021 to sell Ontrak stock, despite knowing that the company’s relationship with its then-largest customer, which represented more than half its revenue, was tenuous. He sold nearly 600,000 of Ontrak shares worth more than $19.2 million before adopting a second Rule 10b5-1 trading plan in August 2021, which prompted him to sell 45,000 more shares of stock worth more than $1.9 million. The complaint alleges that Peizer avoided more than $12.7 million in losses by executing the two trading plans.
Ontrak announced on August 19, 2021, that the customer had terminated the contract, causing Ontrak’s stock price to fall more than 44 percent. The SEC complaint alleges that Peizer and Acuitas adopted the Rule 10b5-1 plans while Peizer was aware of material nonpublic information and as part of a scheme to evade insider trading prohibitions.
SEC Chair Gary Gensler said, “We allege that Mr. Peizer violated Rule 10b5-1 as it has existed for two decades by establishing and executing trading plans while aware of non-public information. Today’s action comes the week that updated amendments to Rule 10b5-1 become effective. These reforms to Rule 10b5-1 will further help prevent unlawful trading by executives on the basis of non-public information and help build greater confidence in the market.”
The SEC’s complaint charges Peizer and Acuitas with violating antifraud provisions of the federal securities laws and seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and an officer and director bar for Peizer.
The U.S. Department of Justice also announced criminal charges against Peizer in a parallel action. The SEC remains committed to investigating insider trading abuses and holding bad actors accountable.
The SEC case continues.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
