The 65-year-old founder and former CEO of Ontrak, a healthcare provider, was sentenced to 42 months in prison and ordered to pay a $17.9 million fine and compensation, making Terren Scott Peizer First-ever executive in criminal cases, based solely on abuse Rule 10B5-1 The Justice Department said the trade plan.
As detailed in various court documents, Peizer is sending increasingly crazy text messages to confidantes and Ontrak executives to learn about potential losses for major customers in the months before they develop trade plans to sell Ontrak shares.
All in all, Peizer sold its stock before it made some information public, avoiding a loss of $12.5 million in stock, and the stock price fell more than 40%.
The Miami company founded by Peizer in 2003 previously lost another big client, determined in court documents as aetnaafter the stock price plummeted in the news, this eliminated $265 million from Peizer’s personal wealth.
In March 2021 Press release Peizer announced the termination of Aetna, saying the company still had a “significant headwind” and touted Ontrak’s deal with Cigna, saying it would drive growth in 2021. Civil Complaints About the Peizer deal.
Peizer resigned from his CEO position in April 2021, but remains the executive chairman.
After losing Aetna, Peizer appears desperate to keep a certain deal with Cigna, and as executive chairman, he continues to contact Ontrak’s CEO regularly, court records show.
Behind the scenes, Peizer describes himself as a potential loss in text messages CignaAuthorities say that because Ontrak’s survival depends largely on maintaining the relationship.
Peizer’s attorney and partner at law firm King & Spalding told wealth This case is “really miscarried justice at the beginning.” He said Peizer had “fully disclosed” his trading plan to the company’s trading plan in advance and had prior approval from the management and compliance officer.
“This procedure and those trade plans should protect Mr. Peizer,” Willingham said. “In our opinion, the case is a huge overturn, wasting taxpayers’ money and setting a dangerous precedent that seriously distorts the material, non-public information, of the entire business world.”
Weilinghan said the case will be appealed. Either way, it can have a frightening effect Thousands of executives in the United States Use Rule 10B5-1 to monetize its equity compensation, which usually forms the majority of its salary.
Meanwhile, the authorities cheered for prosecution.
“Insiders must not be allowed to put their thumbs within the scope of the stock market,” U.S. Attorney Bill Essayli said. statement. “Individuals who undermine our market integrity can and will face criminal imprisonment time.”
Text Trail
In late March 2021, Peizer found through text messages that there were a lot of concerns about Cigna. Copying Peizer’s email also lists the scope of the problem; Cigna is concerned about budget overspending, under-cost savings, and questioning Ontrak’s cost calculations.
Court documents show Peizer’s anxiety about the situation he played in text messages. He wrote to an Ontrak consultant: “We just need to save (Cigna), we’re on the way.” A few weeks later, Peizer texted the Ontrak CEO: “Please save (Cigna) … We’ll be back’Ontrak.
By the end of April, Peizer told consultants that Cigna’s situation was as “creepy” as Aetna’s. “What a nightmare,” Peizer texted on May 1, 2021.
Three days later, Peizer began to find ways to sell its Ontrak Holdings, court documents show.
Rule 10B5-1 Plan Designed to provide Safe Port Want the executive you want Sell stocks In the securities of publicly traded companies, they are in the place where they work and also acquire equity. The SEC revised the rule in 2022 to formalize the cooling period and add a condition that everyone entering the Rule 10B5-1 plan must act sincerely about the plan.
According to authorities, Peizer contacted the broker and set up the Rule 10B5-1 trading plan on May 4, 2021 (a few days after his “nightmare” text). The broker told Peizer that he would need to wait for a 30-day cooling period before he made plans and started selling the stock. Peizer works with brokers.
Instead, he got in touch with another agent and asked if their company had a cooler period. A second broker doesn’t need one, although an employee of the company emailed Peizer on May 10, that inserting a 30-day wait between executing a transaction plan and any transaction starts is an “industry best practice.” Without a cooldown period, the rapid outbreak of the transaction could lead to misconduct and question whether Peizer had substantial non-public information, which the employee emailed.
Peizer did not accept the advice and set up his trading plan the same day. He started selling the next working day. Authorities claim that Peizer has erroneously proved the 10B5-1 plan of Ontrak’s chief financial officer, that the plan was not the result of access to material non-public information, even though Peizer learned about Cigna’s collapsed Cigna deal.
On May 18, just eight days after Peizer formulated its trade plan, Cigna officially notified Ontrak that it would terminate the contract by the end of the year.
Ontrak’s CEO texted Peizer: “(Cigna) intends to end the relationship at the end of 12-31-21… They are really determined by me. They made a decision.”
At the same time, the information has not been disclosed yet.
Peizer sold shares throughout the summer in a plan laid out in May as Ontrak executives struggled to reach a deal with Cigna. Between May and late July, Peizer made $18.9 million by selling shares.
On July 20, 2021, Peizer sent a text message to Ontrak consultant asking if there was any news with Cigna.
The consultant replied that there was no news and he needed to write a press release for Ontrak. “(w) Will the pleasure of getting sick never end?” the consultant wrote.
“No, but I hope anxiety will.” Peiizer replied. The consultant texted: “Me too – the stress level is not on the chart (Ontrak).
Authorities said that on August 13, 2021, Peizer convened Ontrak’s senior vice president, who is leading contract negotiations. The senior vice president told Peizer that Cigna could end her relationship with Ontrak.
The authorities said that about an hour later the same day, Peizer developed a second rule 10B5-1 trading plan, accusing him of wrongly proving the CFO’s certification, which was not in response to non-public information on substances. There is also no cooling period for August plans, and Peizer starts selling Ontrak shares on the next trading day, bringing the number of shares sold every day from 11,000 to 15,000. Between August 16 and August 18, Peizer sold about $900,000 in stock.
Until the next day, the first public disclosure about Cigna appeared.
On August 19, 2021, Ontrak disclosed in a form 8-K that its transaction with the insurance company has ended. Ontrak’s shares fell 44%, court records show.
Authorities say Peizer avoided $12.5 million in losses as he developed two deal plans. The case is part of a data-driven program for the Department of Justice’s Criminal Fraud Department that aims to identify the administrative abuse 10B5-1 transaction plan.
In addition to being sentenced to jail, Peizer was fined $5.25 million and asked to confiscate more than $12.7 million in rude gains.
Aetna declined to comment. Cigna did not immediately respond to a request for comment.
