Healthcare executive avoided more than $12 Million in losses by selling shares through Rule 10b5-1 trading plans before stock freefall
The Securities and Exchange Commission today charged Terren S. Peizer, Executive Chairman of the Santa Monica, California-based healthcare treatment company Ontrak Inc., with insider trading for selling more than $20 million of Ontrak stock between May and August 2021 while in possession of material nonpublic negative information related to the company’s largest customer.
According to the SEC’s complaint, 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 had learned that Ontrak’s relationship with its then-largest customer—representing more than half its revenue—was tenuous. Nevertheless, Peizer attested at the time that he was unaware of any material nonpublic information concerning the company, executed the 10b5-1 plan, and sold nearly 600,000 of Ontrak shares worth more than $19.2 million. In August 2021, the complaint alleges, Peizer learned the same relationship was on the verge of being terminated, which prompted him to adopt a second Rule 10b5-1 trading plan and sell 45,000 more shares of stock worth more than $1.9 million.
When Ontrak announced on August 19, 2021 that the customer had terminated the contract, Ontrak’s stock price fell more than 44 percent and, as a result, the SEC complaint alleges, Peizer avoided more than $12.7 million in losses by executing the two trading plans. The SEC’s complaint alleges that 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 and that, therefore, Peizer cannot take advantage of any affirmative defense available to corporate insiders under Rule 10b5-1.
“We allege that Mr. Peizer violated Rule 10b5-1 as it has existed for two decades by establishing and executing trading plans while aware of non-public information,” said SEC Chair Gary Gensler. “Today’s action comes the week that updated amendments to Rule 10b5-1 become effective. These reforms to Rule 10b5-1 will further help prevent unlawful trading by executives on the basis of non-public information and help build greater confidence in the market.”
“We allege that Mr. Peizer, armed with inside knowledge, avoided millions in losses that ordinary investors suffered. That’s insider trading, even when the trading is done through a 10b5-1 trading plan,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Few things undermine trust in the markets more than insiders abusing their positions for personal advantage; the SEC remains committed to investigating such abuse and holding bad actors accountable.”
The SEC’s complaint, filed in U.S. District Court in the Central District of California, charges Peizer and Acuitas with violating antifraud provisions of the federal securities laws and seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and an officer and director bar for Peizer.
In a parallel action, the U.S. Department of Justice today announced criminal charges against Mr. Peizer.
The SEC’s investigation, which is ongoing, is being conducted by Emily Shea, with assistance from Brian Shute, William Connolly, and Pete Rosario, under the supervision of Kevin Guerrero and Stacy Bogert. The investigation arose from a data-driven initiative into executive trading pursuant to 10b5-1 plans, led by Mr. Guerrero and Ms. Shea, and assisted by Alex Lefferts and Howard Kaplan. The litigation will be handled by Dean Conway, Ms. Shea, and Mr. Guerrero and supervised by James Connor.
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