Santa Monica Man Faces up to 45 Years in Prison for Alleged $12.5 Million Insider Trading Scheme

Terren S. Peizer indicted last week in connection to 2021 insider trading

By Sam Catanzaro

A Santa Monica man faces up to 45 years in prison for allegedly engaging in an insider trading scheme to avoid more than $12.5 million in losses.

An indictment was unsealed last Thursday charging Terren S. Peizer, the CEO and Chairman of the Board of Directors of Ontrak Inc., a Henderson, Nevada-based publicly traded healthcare company, for allegedly engaging in an insider trading scheme in which he fraudulently used Rule 10b5-1 trading plans to trade Ontrak stock.

The indictment represents the first time that the Department of Justice has brought criminal insider trading charges stemming from an executive’s use of a 10b5-1 trading plan. The investigation is part of a data-driven initiative led by the Fraud Section to identify executive abuses of 10b5-1 trading plans.

Rule 10b5-1 trading plans can offer an executive a defense to insider trading charges. However, the defense is unavailable if the executive is in possession of material, nonpublic information at the time he or she enters into the 10b5-1 trading plan. Additionally, a plan does not protect an executive if the trading plan was not entered into in good faith or was entered into as part of an effort or scheme to evade the prohibitions of Rule 10b5-1.

Peizer is charged with one count of engaging in a securities fraud scheme and two counts of securities fraud for insider trading. If convicted, he faces a maximum penalty of 25 years in prison on the securities fraud scheme charge and 20 years in prison on each of the insider trading charges.

“Mr. Peizer is accused of using his insider knowledge as CEO of a publicly traded company to line his own pockets in violation of his duty to his company and its shareholders,” said United States Attorney Martin Estrada.

“Mr. Peizer allegedly exploited material nonpublic information and tried to shield himself with a rule designed to ensure a fair and level playing field for all investors. With this indictment, we again affirm that the law applies equally to all and that corporate executives who unlawfully denigrate the integrity of our financial markets will be held accountable.”

According to court documents, between

May and August 2021, Peizer, 63, a resident of Puerto Rico and Santa Monica, allegedly avoided more than $12.5 million in losses by entering into two Rule 10b5-1 trading plans while in possession of material, nonpublic information concerning the serious risk that Ontrak’s then-largest customer would terminate its contract. Prosecutors say that in May 2021, Peizer allegedly entered into his first 10b5-1 trading plan shortly after learning that the relationship between Ontrak and the customer was deteriorating and that the customer had expressed serious reservations about continuing its contract with Ontrak.

The indictment alleges that Peizer later learned that the customer informed Ontrak of its intent to terminate the contract. Then, in August 2021, Peizer allegedly entered into his second 10b5-1 trading plan approximately one hour after Ontrak’s chief negotiator for the contract confirmed to Peizer that the contract likely would be terminated.

According to the Department of Justice, in establishing his 10b5-1 plans, Peizer allegedly refused to engage in any “cooling-off” period – the time between when he entered into the plan and when he sold stock – despite warnings from two brokers. Instead, Peizer allegedly began selling shares of Ontrak on the next trading day after establishing each plan. On August 19, 2021, just six days after Peizer adopted his August 10b5-1 plan, Ontrak announced that the customer had terminated its contract and Ontrak’s stock price declined by more than 44 percent.

“Today’s groundbreaking insider trading indictment demonstrates that the Department of Justice, together with our law enforcement partners, will not allow corrupt executives to misuse 10b5-1 plans as a shield for insider trading,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “As this case shows, we have embraced the use of data to proactively identify and investigate fraud as we continue to ensure that ordinary investors are on an equal playing field with corporate insiders.”

Santa Monica Menstrual Health Company Wins $40k Westly Prize

removing the device from their body.

Wilen notes that approximately 12 billion pads and 7 billion tampons are discarded each year – and take 500-800 years to fully decompose in garbage dumps. “One person can dispose around 400 pounds of period packaging in their lifetime”, says the company.

By Keemia Zhang

Capd Period, a sustainable menstrual health company based in Santa Monica, has won the 2023 Westly Prize for $40,000, given to “young social innovators” in California who come up with “innovative solutions to significant global challenges.”

Hannah Wilen, CEO, founded Capd Period with Neil Batya, COO, in January 2022, with a mission to provide health products “designed by women, for women”, Wilen says. Capd Period’s flagship product is the CapdCup, the first menstrual cup customers can use without

Traditional, reusable menstrual cups made of silicone or latex have long been considered an eco-friendly, easily accessible alternative, but are typically “difficult to use – especially in public.” Wilen says, pointing out that their use of clean water to empty and wash out the device after each use is inconvenient for women in public restrooms and entirely “unfeasible” for women in developing countries.

Wilen grew up in West Los Angeles, and attended Harvard-Westlake School before studying at Duke University in North Carolina. Wilen attained a Bachelor’s degree in Engineering and a Master’s degree in Business Analytics. After graduation, Wilen “talked to hundreds of women” when conceiving the idea, crafting the prototypes in her own athome studio with a 3D printer..

As a woman of color, Wilen recalls she was a rarity in the classroom, and often “the only female engineer in a room of male engineers.” She also found that when male investors often found it “difficult to understand ” the plight of women’s menstrual health when it was pitched to them, and often were not familiar with what a menstrual cup was. “There has been little innovation in these spaces, historically.” Wilen states.

The CapdCup, made of hypoallergenic, medical-grade silicone, works as a normal menstrual cup does, but can be emptied by unscrewing a cap at the bottom while using the restroom for easy use. The cup is reusable for up to 10 years, and lasts for up to 12 hours of continuous wear. CapdCup was also designed specifically for women with heavy periods, who would otherwise have to change their regular cups up to five times a day.

Wilen plans to eventually provide a slate of holistic health products for women’s use, in line with the company’s “aim to revolutionize” the industry of menstrual care, and desire to “make periods more manageable for women everywhere.” Capd Period, a pending B-corp, also provides educational resources and awareness on their Instagram and Tiktok pages (@CapdPeriod), answering common questions and giving personal care tips to their followers.