Ontrak’s executive saved more than $12 million by selling shares through Rule 10b5-1 trading plans before the stock plummeted
Terren S. Peizer, Executive Chairman of Ontrak Inc., a healthcare treatment company based in Santa Monica, California, was charged with insider trading by the Securities and Exchange Commission (SEC) today.
According to the SEC, Peizer sold more than $20 million worth of Ontrak stock between May and August 2021 while he was in possession of material nonpublic negative information related to the company’s largest customer. The information in question was negative for Ontrak.
The SEC’s complaint states that prior to May 2021, when Peizer established a Rule 10b5-1 trading plan in the name of Acuitas Group Holdings, LLC, his investment vehicle, to sell Ontrak stock, he was made aware that Ontrak’s relationship with its then-largest customer—representing more than half its revenue—was shaky. Peizer did this in order to profit from Ontrak’s stock.
Peizer nonetheless executed the 10b5-1 plan and sold nearly 600,000 Ontrak shares for more than $19.2 million. He also testified at the time that he was unaware of any material nonpublic information concerning the company. According to the complaint, Peizer became aware in August 2021 that the same relationship was on the verge of being severed.
This information prompted him to adopt a second Rule 10b5-1 trading plan and sell 45,000 additional shares of stock with a value of more than $1.9 million. Peizer is charged with securities fraud.
Ontrak’s stock price dropped by more than 44 percent after the company announced on August 19, 2021 that the customer had terminated the contract. As a consequence of this, the SEC complaint alleges that Peizer avoided losses totaling more than $12.7 million by executing the two trading plans.
According to the allegations made in the complaint filed by the SEC, 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. As a result of these allegations, Peizer is unable to benefit from any affirmative defenses that are available to corporate insiders under the Rule 10b5-1.
Gary Gensler, the chair of the Securities and Exchange Commission, stated that “We allege that Mr. Peizer violated Rule 10b5-1 as it has existed for the past two decades by establishing and executing trading plans while aware of non-public information.” “The action that was taken today comes during the same week that updated amendments to Rule 10b5-1 become effective.
These modifications to Rule 10b5-1 will further assist in preventing illegal trading by executives on the basis of non-public information and will assist in the building of greater confidence in the market.
“We allege that Mr. Peizer avoided millions of dollars in losses that ordinary investors suffered because he was armed with inside knowledge. According to Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, “That is insider trading, even when the trading is done through a 10b5-1 trading plan.
“Insiders abusing their positions for personal advantage is one of the few things that undermines trust in the markets more than anything else; the SEC remains committed to investigating such abuse and holding bad actors accountable.”
The complaint that was submitted to the SEC in the U.S. Peizer and Acuitas are accused of breaking antifraud provisions of federal securities laws by the District Court for the Central District of California. The court is also seeking permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and a bar on Peizer’s ability to serve as an officer or director in the future.
In a separate but related action, the United States. The Department of Justice has just announced that Mr. Peizer will be facing criminal charges.
Emily Shea is leading the investigation that is currently being carried out by the SEC. She is being assisted in this endeavor by Brian Shute, William Connolly, and Pete Rosario. Kevin Guerrero and Stacy Bogert are in charge of supervising the investigation.
The investigation was initiated as a result of a data-driven initiative looking into executive trading in accordance with 10b5-1 plans. Mr. Guerrero and Ms. Shea were in charge of the initiative, and Alex Lefferts and Howard Kaplan provided assistance. James Connor will serve as the litigation’s overseer while Dean Conway, Ms. Shea, and Mr. Guerrero will be in charge of its management.
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