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Former President and CEO of public healthcare company Ontrak (Nasdaq: OTRQOn Friday, he was convicted in a multi-million dollar insider trading scheme.
A federal jury in Los Angeles indicted Terren Scott Beiser on charges of securities fraud and two counts of insider trading.
It was the first case the Justice Department prosecuted exclusively based on what is known as Rule 10b5-1, according to a statement. The rule allows company insiders to prepare a predetermined plan to sell stock while also placing limits on certain business practices.
Prosecutors alleged that Beiser violated some of those limits when he made plans in 2021 to sell stock to avoid losses of more than $12.5 million. He sold the shares after learning that Ontrak’s (OTRK) largest customer at the time was about to terminate his contract with the company, according to authorities.
Ontrak (OTRK) stock fell about 44% after news of the expiring contract became public.
“This is the first insider trading prosecution at the Department of Justice that relies exclusively on the use of a trading scheme, but it will not be the last,” said Deputy Assistant Attorney General Nicole M. Argentieri, who heads the Justice Department’s Criminal Division. “We will not allow corporate executives who trade inside information to hide behind trading plans they devised in bad faith.”
The lawyer representing Beiser said they would appeal, and that testimony showed that Bezer did not act in bad faith because he made the trading plans on the advice of his management team, the Associated Press reported.
Sentencing is scheduled for October. Beiser, 64, faces up to 25 years in prison on the securities fraud charge and up to 20 years on each insider trading count. he to resign As CEO in March 2023 after being indicted.