The former CEO and chairman of the board of directors of Ontrak Inc., a Miami, Florida-based publicly traded health care company, was sentenced to 42 months in federal prison for engaging in an insider trading scheme – using Rule 10b5-1 stock trading plans – to avoid losses of more than $12.5 million.

Terren Scott Peizer, 65, a resident of Puerto Rico and Santa Monica, was sentenced by United States District Judge Dale S. Fischer, who also ordered him to pay a $5.2 million fine and $12.7 million in restitution.

At the conclusion of a 10-day trial in June 2024, a jury found Peizer guilty of one count of securities fraud and two counts of insider trading.

The case is part of a data-driven initiative led by the Justice Department’s Criminal Division’s Fraud Section to identify executive abuses of 10b5-1 trading plans. Rule 10b5-1 trading plans can offer an executive a defense to insider trading charges. However, the defense is unavailable if the executive is in possession of material, non-public information at the time he or she enters into the 10b5-1 trading plan. Additionally, a plan does not protect an executive if the trading plan was not entered into in good faith or was entered into as part of an effort or scheme to evade the prohibitions of Rule 10b5-1.

Peizer avoided losses of approximately $12.5 million by entering into two Rule 10b5-1 trading plans while in possession of material, non-public information concerning the serious risk that Ontrak’s then-largest customer would terminate its contract.

In May 2021, Peizer entered into his first 10b5-1 trading plan shortly after learning that the relationship between Ontrak and the customer was deteriorating, and that the customer had expressed serious reservations about continuing its contract with Ontrak. Peizer later learned that the customer informed Ontrak of its intent to terminate the contract. Then, in August 2021, Peizer entered into his second 10b5-1 trading plan approximately one hour after Ontrak’s chief negotiator for the contract confirmed to Peizer that the contract likely would be terminated.

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. 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%.

The FBI investigated the case, with substantial assistance from the Financial Industry Regulatory Authority’s (FINRA) Criminal Prosecution Assistance Group.

The U.S. Attorneys Office and Matthew Reilly of the Justice Department’s Criminal Division’s Fraud Section prosecuted this case. Assistant United States Attorney Jonathan S. Galatzan of the Asset Forfeiture and Recovery Section handled the forfeiture proceedings.