LAS VEGAS (KLAS) — The former CEO of a Henderson-based health care company was convicted Friday of insider trading in a landmark case aimed at executives who violate trading laws.

Terren Scott Peizer, 64, was on the board of directors and served as CEO for Ontrak Inc. He is a resident of Puerto Rico and Santa Monica, California.

A Los Angeles jury found Peizer guilty of one count of securities fraud and two counts of insider trading after he avoided $12.5 million in losses by selling stock before news came out that the company was losing its biggest customer, according to a news release from the U.S. Attorney’s Office for the Central District of California.

Ontrak’s stock price plummeted by 44% when the news went public.

What makes the case unique is its focus on Rule 10b5-1 trading plans that have been used by executives to line their pockets at the expense of shareholders, explained U.S. Attorney Martin Estrada. This was the first insider trading prosecution based exclusively on the use of those trading plans.

Peizer used two Rule 10b5-1 trading plans, according to evidence presented at a 10-day trial. He knew that Ontrack’s largest customer was about to terminate their contract.

“When Terren Peizer learned significant negative news about Ontrak, he set up Rule 10b5-1 trading plans to sell shares before the news became public and to conceal that he was trading on inside information,” said Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division.

“With today’s verdict, the jury convicted Peizer of insider trading. This is the Justice Department’s first insider trading prosecution based exclusively on the use of a trading plan, but it will not be our last. We will not let corporate executives who trade on inside information hide behind trading plans they established in bad faith,” Argentieri said.

In May 2021, Peizer entered into his first 10b5-1 trading plan after learning that the customer relationship was deteriorating and the customer expressed serious reservations about continuing its contract with Ontrak. Peizer later learned that the customer intended 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 confirmed to Peizer that the contract likely would be terminated.

Despite warnings from two brokers, a senior Ontrak executive and attorneys, Peizer refused to engage in any “cooling-off” period before he sold stock. Instead, Peizer began selling shares of Ontrak on the next trading day after establishing each plan.

On Aug. 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%.

“As a CEO, Mr. Peizer abdicated his responsibilities by using his position to conceal trading on material non-public information in order to avoid the losses shareholders suffered,” said Acting Assistant Director in Charge Krysti Hawkins of the FBI Los Angeles Field Office.

U.S. District Judge Dale S. Fischer scheduled an Oct. 21 sentencing hearing, at which time Peizer will face a maximum of 25 years in prison on the securities fraud count and up to 20 years in prison on each of the insider trading counts.

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