Former CEO sentenced to prison after first-ever prosecution for stock sales via trading plans that thousands of executives use

• Former Ontrak CEO Terren Scott Peizer has been sentenced to 42 months of prison time in a first-ever prosecution based exclusively on Rule 10b5-1 trading plans, authorities announced on Monday. The plans are relied upon by thousands of U.S. executives at publicly traded companies. A lawyer for Peizer told Fortune the case will be appealed and said the evidence at trial showed Peizer did not commit insider trading.

The 65-year-old founder and former CEO of behavioral health care provider Ontrak was sentenced to 42 months in prison and ordered to pay $17.9 million in fines and restitution, making Terren Scott Peizer the first executive ever convicted in a criminal case based exclusively on the abuse of Rule 10b5-1 trading plans, according to the Department of Justice.

As detailed in various court documents, Peizer was sending increasingly frantic text messages to a confidant 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.