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.
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 Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)-5 thereunder. The SEC is seeking 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.