Terren Peizer, protégé of Michael Milken, gets 3-1/2 years prison for insider trading

A Former Associate of Michael Milken Sentenced to Prison for Insider Trading

A former protégé of Michael Milken, the junk bond king, was sentenced to 3-1/2 years in prison on Monday for insider trading at a healthcare company where he once served as the CEO. Terren Peizer, 65, the founder of Ontrak, received the sentence from US District Judge Dale Fischer in Los Angeles. He was also fined $5.25 million and ordered to forfeit over $12.7 million in illicit gains.

Peizer intends to appeal the decision, as stated by his attorney David Willingham.

The case was notable as it was the first prosecution solely based on the use of 10b5-1 trading plans, which allow insiders at public companies to sell shares at predetermined times to prevent accusations of timing trades with negative corporate news.

Peizer was accused of avoiding losses by selling approximately $20 million of Ontrak shares under plans he established in May and August 2021. The first plan was set up after learning about the deteriorating relationship between Ontrak and its largest customer, Cigna. The second plan was created minutes after receiving news that Cigna was likely to sever ties with the company.

Following the disclosure of the end of its relationship with Cigna, Ontrak’s share price dropped by over 44% on Aug. 19, 2021.

Peizer, who worked under Milken at Drexel Burnham Lambert in the 1980s, cooperated with the government’s case against his former boss in exchange for immunity from prosecution. Milken, who pleaded guilty to securities fraud, served around two years in prison and was later pardoned by President Trump in February 2020.