Chairman of Publicly Traded Health Care Company Convicted of Insider Trading
Author: Destiny Aigbe
July 4, 2024
Introduction: In a groundbreaking decision, a federal jury in Los Angeles convicted Terren S. Peizer, the former CEO, executive chairman, and chairman of the board of directors of Ontrak Inc., for insider trading. This conviction marks the first time the Justice Department has prosecuted an insider trading case based exclusively on the misuse of Rule 10b5-1 trading plans.
The Case: Terren Peizer, a resident of Santa Monica, California, and Puerto Rico, was found guilty of setting up Rule 10b5-1 trading plans to sell shares of Ontrak Inc. while in possession of material non-public information. This scheme allowed him to avoid more than $12.5 million in losses by trading on insider knowledge about the potential termination of a significant customer contract.
Key Details:
- Timeline of Events:
- In May 2021, Peizer learned about the deteriorating relationship between Ontrak and its largest customer.
- In August 2021, just minutes after being informed about the likely termination of the contract, Peizer established a second Rule 10b5-1 trading plan.
- Peizer began selling shares the next trading day after establishing each plan, bypassing any "cooling-off" period despite multiple warnings from brokers and attorneys.
- On August 19, 2021, Ontrak publicly announced the contract termination, leading to a 44% drop in its stock price.
The Verdict: Peizer was convicted of one count of securities fraud and two counts of insider trading. He faces a maximum penalty of 25 years in prison for securities fraud and 20 years for each count of insider trading. Sentencing is scheduled for October 21.
Implications for Corporate Executives: This case underscores the importance of adhering to ethical and legal standards when establishing and executing Rule 10b5-1 trading plans. Corporate executives must:
- Ensure that trading plans are set up in good faith and not as a means to evade insider trading prohibitions.
- Avoid initiating trades immediately after establishing a trading plan, particularly if they possess material non-public information.
- Recognize the significant legal risks and potential penalties associated with abusing trading plans.
The Role of Regulatory Bodies: The FBI and FINRA played crucial roles in investigating and supporting the prosecution of this case. The Justice Department has emphasized that this is the first of many prosecutions to come, highlighting a data-driven initiative to identify and prosecute abuses of Rule 10b5-1 trading plans.
Conclusion: The conviction of Terren S. Peizer serves as a powerful reminder that corporate insiders must abide by the law and uphold their responsibilities to shareholders. At [Your Law Firm's Name], we are dedicated to advising corporate executives on compliance with securities laws and ensuring that trading practices remain within legal and ethical boundaries.
About the Author
Destiny Aigbe
Managing Partner
Aigbe Law PLLC | Dark Alpha Capital
A Corporate and Securities Law Firm
With a robust foundation in law and finance, Destiny Aigbe has carved a distinguished career, underpinned by his pivotal role in orchestrating and managing complex transactions that have propelled companies to significant growth and market prominence. As a seasoned attorney and strategic advisor, Destiny has been instrumental in facilitating over $75 million in capital raises, demonstrating a keen acumen for securing funding and fostering investor confidence.
Destiny's leadership in the execution of six successful public listings, through meticulously structured reverse mergers and registration statements, showcases his adeptness in navigating the intricacies of the public markets and his capacity to guide companies through transformative growth phases. His involvement in five mergers as an operator further illustrates his versatile skill set, extending beyond legal expertise to include hands-on management and operational strategy, though these ventures did not involve funding.
Destiny's professional journey is marked by a commitment to excellence and a diverse range of experiences, from representing a wide spectrum of clients including public and private companies, and investment firms, to holding significant roles within the US government. His tenure with the US Department of State and the National Institutes of Health highlights his adaptability and his contribution to the advancement of entrepreneurial ventures in sectors like biotechnology and nanotechnology through strategic funding initiatives.
An alumnus of Vanderbilt University Law School, Destiny focused on Finance and Mergers & Acquisitions, further honing his expertise with a certificate in Law and Business. His foundational education in Finance was obtained with honors from the University of Maryland's Robert H. Smith School of Business, which laid the groundwork for his subsequent achievements in investment banking and legal practice.
Residing in the Washington, D.C. area, Destiny Aigbe continues to leverage his extensive experience and insightful leadership to drive innovation, growth, and success for his clients and the ventures he is involved with.
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