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The former CEO of Ontrak Terren Scott Peizer has been condemned Up to 42 months from prison in the first of its kind, prosecutors, based exclusively on plans for trading with a rule of 10b5-1, authorities announced on Monday. The plans are relying on thousands of US executives in publicly traded companies. Peizer’s lawyer said Fortune The case will be appealed and stated that the evidence in the process shows that Peizer has not traded internal information.
The 65-year-old founder and former executive director of the behavioral health provider Ontrak was sentenced to 42 months in prison and sentenced to pay $ 17.9 million fines and restitution, turning the Terren Scott Peizer the first executive director in a criminal case.
As described in various court documents, Peizer sent increasingly non -nasty text messages to the trusted and Ontrak leaders about the potential loss of a major client in the months before setting up a trading plan for the sale of Ontrak shares.
All of the said, Peizer avoids $ 12.5 million in stock losses by selling his shares before being disclosed and the price of the shares dropped over 40%, authorities said.
The Miami -based company, founded by Peizer in 2003, has previously lost another large client identified in court documents such as Aetna, which deleted $ 265 million from Peizer’s personal wealth after the price of Ontrak’s shares decreased with the news.
In a March 2021 press release, which announced the termination of Aetna, Peizer said the company still had “significant queues” and advertised the Ontrak deal with Cigna, stating that this would lead to 2021 growth.
Peizer withdrew from the role of CEO in April 2021, but remained as executive chairman.
After losing Aetna, it seems that Peizer is desperate to try to maintain a resemblance to a deal with Cigna, and as the executive chairman, he remains in regular contact with the executive director of Ontrak by text, the court records show.
Behind the scenes, Peizer is described in a text message as “fixed” on the potential loss of Cigna, with the survival of Ontrak depending to a large extent on maintaining the connection, the authorities said.
David K. Willingham, who is a PEIZER lawyer and a partner at King & Spalding Law Firm, told Fortune The case was a “truly miscarriage of justice from the beginning”. Peizer “fully revealed” its plans for trading in advance to its company and in advance received approval from the management and conformity officer, he said.
“This procedure and these trading plans had to defend G -n Paizer,” Willingham said. “In our opinion, this case was a huge excessive loss of dollars of taxpayers and puts a dangerous precedent that grossly distorts the importance of material, unpublished information in the world of business.”
Willingham said the case would be appealed. Either way, it can have a freezing effect, as thousands of US leaders use a rule of 10b5-1 plans to provide revenue from their own capital compensation, which often constitutes most of their pay.
In the meantime, the authorities have cheered the prosecutor’s office.
“In -senses should not be allowed to place the staff on the stock exchange,” said US lawyer Bill Esayli for Central District of California in a DOJ statement. “People who challenge the integrity of our markets can and will face prison for their crimes.”
At the end of March 2021, Peizer learned through a text message that there were many concerns about Cigna. An email copying Peizer also outlined the scope of problems: Cigna was worried about exceeding the budget and lack of cost savings and questioned the calculations of Ontrak’s costs.
Judicial documents show Paizer’s anxiety from the situation as she played out in his text messages. He wrote to an ontrak consultant: “We just have to save [Cigna] And we are on the way. “A few weeks later, Peizer sent a message to Ontrak CEO:” Please just save [Cigna]… then we will return “Ontrak.” “
At the end of April, Peizer told the consultant that the Cigna situation was “sinister” like the Aetna situation. “What a nightmare,” wrote on May 1, 2021.
Three days later, Peizer has started looking for ways to sell his ontrak Holdings, court documents show.
Plans of Rule 10B5-1 are intended to provide a safe port to executive directors who want to sell shares in the securities of publicly traded companies where they also work-which also receive pay in equity. The SEC changed the rule in 2022 to formalize a cooling period and add a condition that anyone who enters a rule 10b5-1 must act in good faith in the plan.
According to authorities, Peizer contacted a broker to create a trading plan with a Rule 10b5-1 on May 4, 2021, just days after his text “What a Nightmare”. The broker told Peizer that he would have to wait 30 days for the cooling period between the moment he created the plan and before he started selling shares. Peizer is delayed in working with the broker.
Instead, he contacted another broker and asked if their company had a cooling period. The second broker did not require one, although an employee of the company sent an email to Peizer on May 10 that it was the “best practice in the industry” to insert the 30-day waiting between the implementation of the trading plan and the beginning of any transactions. Without the cooling period, the rapid start of trade can create the appearance of impracticality and question whether Peizer has material unpublished information, the employee by email.
Peizer did not take the advice and launched his trading plan the same day. He started selling the next business day. Authorities claimed that Peizer received a 10B5-1 plan approved by a false certification of Ontrak’s Chief Financial Officer that the plan was not the result of access to material unpublished information, although Peizer knew about the collapsing Cigna transaction.
On May 18, just eight days after Peizer set up his trading plan, Cigna officially notified Ontrak that he would terminate the contract by the end of the year.
Ontrak’s CEO sent a message to Peizer, “[Cigna] He intends to end the relationship at the end of the year 12-31-21 … They are really firm with me. A decision was made. “
In the meantime, this information was not public.
Peizer has sold shares all summer long under the plan he created in May, as Ontrak executives worked to try to reanate a deal with Cigna. Between May and late July, authorities said Peizer had made $ 18.9 million from shares.
On July 20, 2021, Peizer sent an ontrak text consultant to ask if there was any word for a deal with Cigna.
The consultant replied that there was no news and that he had to write a profit press for Ontrak. “[W]Sick fun never ends? “The consultant wrote.
“No, but I want anxiety,” Peyer wrote. The consultant sent text messages: “I too – the levels of firing are out of the charts in [Ontrak]S “
On August 13, 2021, Peizer called the Vice President of Ontrak, who led the contract negotiations, authorities said. SVP told Peizer that Cigna is likely to end his relationship with Ontrak.
On the same day, about an hour after the call, authorities said Peizer created a second trading plan 10b5-1, claiming that again a false certificate of the financial officer that the plan was not in response to material
Non -public information. The plan for August also did not have a cooling period, and Peizer began selling Ontrak shares the next day of trading, accumulating the number of shares sold daily from 11,000 to 15,000. From August 16 to 18 August made about $ 900,000 in sales.
It was only the next day that the first public disclosure for Cigna came out.
On August 19, 2021, Ontrak revealed on a form 8-K that his transaction with the insurer was over. The price of Ontrak’s shares fell by 44%, the court records show.
Peizer avoids $ 12.5 million losses as he created the two trading plans, authorities say. The case is part of an initiative managed by data from the DOJ Criminal Fraud Division to identify enforcement abuses of 10B5-1 trading plans.
In addition to his prison sentence, Peizer was fined $ 5.25 million and was obliged to take over $ 12.7 million in unscrupulous profits.
Aetna declined to comment. Cigna did not immediately answer a request for comment.
This story was originally presented on Fortune.com
