Puerto Rico Insider Trading Scheme Uncovered: Ontrak Inc. CEO Charged with Fraud

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Introduction

Terren S. Peizer, the CEO and Chairman of the Board of Directors of Ontrak Inc., has been indicted for allegedly engaging in an insider trading scheme that avoided over $12.5 million in losses.

The Allegations

According to court documents, Peizer used Rule 10b5-1 trading plans to trade Ontrak stock while possessing material nonpublic information about a serious risk to the company’s largest customer.

The Trading Plans

Between May and August 2021, Peizer allegedly entered into two trading plans after learning that Ontrak’s then-largest customer was likely to terminate its contract. The indictment claims that he began selling shares of Ontrak on the next trading day after establishing each plan, despite warnings from brokers about the lack of a “cooling-off” period.

The Consequences

On August 19, 2021, just six days after Peizer adopted his second 10b5-1 plan, Ontrak announced that the customer had terminated its contract, causing a 44% decline in stock price. If convicted, Peizer faces up to 25 years in prison on securities fraud charges.

Reaction from Authorities

“This case demonstrates that the Department of Justice will not tolerate insider trading schemes, even by those who attempt to shield themselves with 10b5-1 plans,” said Assistant Attorney General Kenneth A. Polite Jr. “We will continue to use data to identify and investigate fraud, ensuring a level playing field for all investors.”

Investigation

The FBI is investigating the case, which marks the first time the Department of Justice has brought criminal insider trading charges based exclusively on an executive’s use of 10b5-1 trading plans.

Conclusion

This case serves as a reminder that the Department of Justice will not tolerate fraudulent activities, including insider trading schemes. The FBI and other authorities will continue to investigate and prosecute such cases to ensure a level playing field for all investors.