A healthcare executive who used Rule 10b5-1 trading plans to unload shares before a stock freefall saved over $12 million.
Ontrak Inc chairman’s Allegation report
The Executive Chairman of Santa Monica-based healthcare treatment company Ontrak Inc., Terren S. Peizer, has been charged with insider trading by the Securities and Exchange Commission. The SEC alleges that between May and August 2021, Peizer sold more than $20 million worth of Ontrak stock while in possession of material, nonpublic negative information related to the company’s largest customer.
As per SEC’s complaint, Peizer knew that Ontrak’s relationship with its then-largest customer, which represented more than half of its revenue, was tenuous prior to May 2021, When he wanted to sell his Ontrak stock, he created a Rule 10b5-1 trading plan under the name of his investment entity, Acuitas Group Holdings LLC.
While Peizer executed the 10b5-1 plan and sold roughly 600,000 Ontrak shares for more than $19.2 million, he swore at the time that he was ignorant of any material nonpublic information concerning the company. According to the complaint, Peizer again became aware that the same relationship was about to be severed in August 2021, prompting him to establish a second Rule 10b5-1 trading plan and sell 45,000 more shares of stock for more than $1.9 million.
According to the Securities and Exchange Commission complaint, Peizer avoided more than $12.7 million in losses by completing the two trading plans after Ontrak informed him on August 19, 2021, that the customer had terminated the contract. The SEC’s complaint states that Peizer cannot use any affirmative defence available to corporate insiders under Rule 10b5-1 since he and Acuitas approved the plans when Peizer was aware of material nonpublic information and as part of a scheme to circumvent insider trading rules.
The SEC chairman, Gary Gensler, has stated, “We allege that Mr Peizer violated Rule 10b5-1 as it has existed for two decades by developing and executing trading plans while knowing non-public information.” New modifications to Rule 10b5-1 go into force this week, which is why we’re taking action now. Increased market trust and reduced instances of insider trading by executives are two goals of the proposed changes to Rule 10b5-1.
We claim that Mr Peizer, using his exclusive knowledge, saved common investors millions of dollars in losses. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, called the such activity “insider trading,” even when conducted in accordance with Rule 10b5-1 trading plans. The SEC is still dedicated to investigating insider trading and punishing those responsible, as it is one of the key causes of market distrust.
The Securities and Exchange Commission has filed a complaint in U.S. District Court for the Central District of California against Peizer and Acuitas for allegedly violating antifraud provisions of federal securities laws. The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and a bar on Peizer serving as an officer or director.
Mr Peizer has also been hit with criminal charges from the United States government today.
Emily Shea, Brian Shute, William Connolly, and Pete Rosario, under the direction of Kevin Guerrero and Stacy Bogert, are leading the SEC’s ongoing investigation.
Alex Lefferts and Howard Kaplan helped Mr Guerrero and Ms Shea with their data-driven inquiry into executive trading under 10b5-1 plans, which led to the probe. The litigation will be led by James Connor and assisted by Dean Conway, Shea, and Guerrero.
