As detailed in various court documents, Peizer was sending increasingly frantic text messages to a confidante and Ontrak executives about the potential loss of a major client in the months before he set up a trading plan to sell Ontrak stock.

All told, Peizer avoided $12.5 million in stock losses by selling his shares before certain information was made public and the stock price dropped more than 40%, authorities said.

The Miami-based company, founded by Peizer in 2003, had previously lost another big client, identified in court documents as Aetna, which wiped out $265 million of Peizer’s personal wealth after Ontrak’s stock price plummeted on the news. 

In a March 2021 press release announcing the Aetna termination, Peizer said the company still had “significant tailwinds” and touted Ontrak’s deal with Cigna, saying it would drive 2021 growth, according to a Securities and Exchange Commission civil complaint about Peizer’s trading.

Peizer stepped down from the CEO role in April 2021, but remained as executive chairman.

After losing Aetna, Peizer appears to have been desperate to try to maintain some semblance of a deal with Cigna, and as executive chairman, he remained in regular contact with Ontrak’s CEO by text, court records show. 

Behind the scenes, Peizer described himself in a text message as “fixated” on the potential loss of Cigna, with Ontrak’s survival largely dependent on maintaining the relationship, authorities said.  

David K. Willingham, who is Peizer’s lawyer and a partner at law firm King & Spalding, told Fortune the case was a “true miscarriage of justice from the get-go.” Peizer “fully disclosed” his trading plans in advance to his company and got approval from the management and compliance officer beforehand, he said.

“This procedure and those trading plans were supposed to protect Mr. Peizer,” Willingham said. “In our view, this case was a massive overreach, a waste of taxpayer dollars, and sets a dangerous precedent that grossly distorts the meaning of material, nonpublic information across the business world.”

Willingham said the case will be appealed. Either way, it could have a chilling effect as thousands of U.S. executives use Rule 10b5-1 plans to monetize their equity compensation, which often makes up the bulk of their pay.

Meanwhile, authorities cheered the prosecution.

“Insiders must not be allowed to put their thumbs on the scales of the stock market,” said U.S. Attorney Bill Essayli for the Central District of California in a DOJ statement. “Individuals who impugn the integrity of our markets can and will face prison time for their crimes.”

The Text Trail

In late March 2021, Peizer found out via text message that there was a lot of worry all around about Cigna. An email that copied Peizer also laid out the scope of the problems; Cigna was worried about budget overruns, lack of cost savings, and questioned Ontrak’s cost calculations.

Court documents show Peizer’s anxiety over the situation as it played out in his text messages. He wrote to an Ontrak consultant, “We just need to save [Cigna] and we are on our way.” A few weeks later, Peizer texted the Ontrak CEO, “Please just save [Cigna] … the we will get back ‘OnTrak.’”

By the end of April, Peizer told the consultant the situation with Cigna felt “eerily” like the Aetna situation. “What a nightmare,” Peizer texted on May 1, 2021.

Three days later, Peizer started looking at ways to sell his Ontrak holdings, court documents show. 

Rule 10b5-1 plans are meant to provide safe harbor to executives who want to sell stock in the securities of the publicly traded companies where they work—and who also get paid in equity. The SEC amended the rule in 2022 to formalize a cooling-off period and added a condition that everyone who enters into a Rule 10b5-1 plan must act in good faith with respect to the plan.

According to authorities, Peizer got in touch with a broker to set up a Rule 10b5-1 trading plan on May 4, 2021, just days after his “What a nightmare” text. The broker told Peizer he would need to wait 30 days for the cooling-off period between the time he set up the plan and before he could start selling stock. Peizer balked at working with the broker. 

Instead, he got in touch with another broker and asked whether their firm had a cool-down period. The second broker didn’t require one, although an employee at the firm emailed Peizer on May 10 that it was “industry best practice” to insert a 30-day wait between executing the trading plan and the commencement of any trades. Without the cooling-off period, a rapid onset of trading could create the appearance of impropriety and call into question whether Peizer had material non-public information, the employee emailed. 

Peizer did not take the advice and established his trading plan that same day. He began selling the next business day. Authorities claimed Peizer got the 10b5-1 plan approved by falsely certifying to Ontrak’s chief financial officer that the plan was not a result of access to material non-public information, even though Peizer knew about the crumbling Cigna deal. 

On May 18, just eight days after Peizer established his trading plan, Cigna formally notified Ontrak that it would terminate the contract by the end of the year. 

Ontrak’s CEO texted Peizer, “[Cigna] is intending to end relationship at the end of the year 12-31-21…They are really firm with me. Decision has been made.”

Meanwhile, that information wasn’t made public.

Peizer sold stock throughout the summer under the plan he established in May, as Ontrak executives worked to try to resuscitate a deal with Cigna. Between May and late July, authorities said Peizer made $18.9 million from selling stock. 

On July 20, 2021, Peizer texted the Ontrak consultant to ask if there was any word on a deal with Cigna. 

The consultant wrote back that there was no news and that he needed to write an earnings press release for Ontrak. “[W]ill the fun never end?” the consultant wrote. 

“No, but I wish the anxiety would,” Peizer wrote back. The consultant texted, “Me too — stress levels are off the charts at [Ontrak].”

On Aug. 13, 2021, Peizer called Ontrak’s senior vice president who was leading the contract negotiations, authorities said. The SVP told Peizer that Cigna was likely to end its relationship with Ontrak. 

That same day about an hour after the call, authorities said Peizer set up a second Rule 10b5-1 trading plan, alleging he again falsely certified to the CFO that the plan was not in response to material non-public information. The August plan also didn’t have a cooling-off period, and Peizer started selling Ontrak stock the next trading day, bumping up the number of shares sold daily from 11,000 to 15,000. Between Aug. 16 to Aug. 18, Peizer made about $900,000 selling stock. 

It wasn’t until the next day that the first public disclosure about Cigna came out.

On Aug. 19, 2021, Ontrak disclosed in a Form 8-K filing that its deal with the insurer was over. Ontrak’s stock price fell 44%, court records show. 

Peizer avoided $12.5 million in losses because he set up the two trading plans, authorities alleged. The case is part of a data-driven initiative by the DOJ’s criminal fraud division to identify executive abuses of 10b5-1 trading plans.

In addition to his prison sentence, Peizer was fined $5.25 million and was required to forfeit more than $12.7 million in ill-gotten gains.

Aetna declined to comment. Cigna did not immediately respond to a request for comment.