Milk It Like Milken
Terren Peizer ratted out the junk bond king in the 1980s. Now he's headed to prison for insider trading.
“Inside information is a form of financial steroid. It is unfair: it is offensive; it is unlawful; and it puts a black mark on the entire enterprise.” – Preet Bharara
Funny how history churns in the world of Wall Street ne-er-do-wells.
Terren Scott Peizer, 65, received a 42-month prison sentence on Monday for insider trading following decades of running money-losing companies and betraying the man who made his long and sketchy career even possible: Michael Milken, the 1980s icon of Wall Street greed.
It was a tricky case for prosecutors, and the first of its kind. Peizer, who founded a Miami-based behavioral health care company called Ontrak, plans to appeal. His lawyer dubbed it the ol’ “miscarriage of justice.”
“This case was a massive overreach, a waste of taxpayer dollars, and sets a dangerous precedent,” attorney David Willingham told Fortune. “We will not rest until we clear Mr. Peizer’s name and reputation.”
Sounds like a lot of sleepless nights for both of them.
Prosecutors successfully alleged that Peizer devised a sneaky plan to dump his soon-to-be-cratering Ontrak stock, avoiding $12.5 million in losses.
He apparently tried to make his stock dump look legal by setting up a couple of Rule 10b5-1 trading plans that executives use to make pre-announced sales of their stock.
The idea behind these plans is that by scheduling trades in advance, executives can’t be accused of trading on non-public information. But Peizer set up his plans immediately after learning Ontrak was about to lose a major contract with health insurance giant Cigna.
“What a nightmare,” Peizer texted a consultant shortly before setting up a plan, according to the indictment.
Six days after Peizer set up one of his trading plans, Ontrak announced that Cigna had ditched its contract and Ontrak’s stock plunged by more than 44%.
The case marks the first time anyone has been prosecuted for Rule 10b5-1 trading abuses. Peizer has to forfeit more than $12.7 million of ill-gotten gains and pay a $5.25 million fine. He’s also been charged in a civil complaint by the Securities and Exchange Commission.
Insider trading erodes faith in companies and markets, and let’s face it, a lot of poor schmucks are on the other side of these trades. It’s about as ethical as selling a used car that you know is about to blow its engine. And it’s a lesson that goes back to at least the 1980s when Peizer worked for Milken as a bond salesman at Drexel Burnham Lambert.
Peizer could have gone to prison then, but he testified against his boss in exchange for immunity. Milken, who inspired the character played by Michael Douglas in the iconic 1987 film “Wall Street,” pleaded guilty to securities violations. He served about two years in prison. And President Donald Trump pardoned him in February 2020.
Peizer walked away with the millions Milken showered upon him. He used the money he made at Drexel to invest in a slew of dubious small-cap companies, several of which lost money, plunged in value or filed bankruptcy about as soon as he became involved.
Then he founded Ontrak, a company focused on helping patients change self-destructive behaviors. But some behaviors never change.
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