Greed-to-Grief, No. 10

Terren Peizer was the CEO of Ontrak, a publicly traded company that helped people with behavioral health issues. Any officer at a public company has certain restrictions regarding when he or she can buy or sell the company’s stock.

Senior officials at a company like the CEO and CFO have access to information about the company before it is made public to all shareholders. It is illegal for these officers to trade the company’s stock until such information is made public.

This is the essence of insider-trading laws, they prevent insiders (eg, CEO, CFO) from benefiting from information not available to all shareholders.

Imagine the CEO of a company has a meeting with client that decides to place a huge new order with the company. It might be weeks or months before that order is made public, but the CEO went home and bought more company stock before the new order was known to all shareholders. A big no-no and a good example of trading based on inside information.

You may now wonder, “With all these insider-trading laws, how the heck can a company insider ever buy or sell any stock?” To remedy this problem and to keep the playing field level for insiders and all of us regular shareholders, the SEC created the 10b5-1 trading plan.

An insider would set up an SEC trading plan that would say something like the following: “Sell 2% of my shares every quarter, two weeks after the company announces its financial results.” The trading plan is a binding contract, and the shares get sold no matter the stock price.

Peizer’s Ontrak business relied on selling programs to health insurance companies and CIGNA was a big client. When it became clear to Peizer that CIGNA was going to drop Ontrak as a business partner, Peizer panicked. Such a large client cancellation would crush Ontrak’s stock, personally costing Peizer millions.

Any SEC trading plan requires a “cooling off” period, in which the plan cannot go into effect for 90 days once its started. This is similar to life insurance policies that will not pay if you die within six months of purchasing the policy.

What did Peizer do? He shopped around until he found a broker that waived the cooling off period and allowed his SEC trading plan to be effective right away and he sold off massive amounts of stock through the “legal” trading plan.

Government prosecutors saw right through it and convicted him of using non-public information to avoid $12.5 million of losses by selling his stock through his “trading plan.”

 The path from Greed-to-Grief

I’m going to let you in on a secret: Writing is not that difficult. What is difficult is picking the subject and then doing the research so you know what to write about.

Greed-to-Grief focuses on people who made it to the top of their profession, whether it be financial, academic, or some other discipline. From the top, we chart the path to the bottom, usually with a good solid criminal conviction and prison sentence thrown in for good measure.

The interesting part of the research is finding clues in a person’s past that are predictive of his or her current behavior. The research tells us that the criminal activity was something we should have expected had we known the person’s background.

So, when I started the research on Peizer, I was hoping to find a tidbit in his past that would have indicated why his recent conviction on insider-trading charges should not have been a surprise. Many times, I search for hours to find that one story about how somebody cheated on a bet or stole money from a family member years ago.

But with Peizer, it was a different story. One Google search and I had enough damaging material about him to write a book.

Let’s focus on his early career when Peizer went to work at Drexel Burnham Lambert in the 1980s. He worked for Michael Milken, who pioneered the concept of Junk Bonds, which were used to raise money for less creditworthy businesses that could not borrow from a traditional bank. A fabulous concept that changed the world of finance forever – Junk Bonds are still running strong decades later.

Problem was that Milken colluded with others in buying and selling the Junk Bonds and was convicted on insider trading and other charges and was sentenced to 10 years in prison and forfeited a half billion in fines. (Milken earned a billion dollars over a few years doing this, but I guess it was not enough.)

Guess who was Milken’s protégé? A young man named Teren Peizer. As Milken’s right-hand man, Peizer was stuck in the middle of the entire series of crimes and was facing his own indictment and prison time until he agreed to an immunity deal and provided damning testimony against his former boss.

Over the next 20 years, Peizer was involved more than a dozen companies, all of which failed, some of which he was able to extract millions from while leaving a trail of destruction that would make a CAT 5 hurricane proud.

It all goes back to the question we repeatedly ask in these pages, “Was I the only person to run a Google search on this guy before dealing with him?”

By the time of the Ontrak debacle and criminal conviction in 2025, Peizer was in his 60s with plenty of history to warn people away, if they would only take the time to ask a few questions. Shame on them.

  Key Takeaways

• At the risk of repeating myself for the 10th time, know the background of people before you get involved with them, even if you are buying publicly traded stock.

• Don’t assume that just because a person runs a public company, they he or she has been properly vetted. Just look at Peizer.

• I am a big fan of pressing hard against the rules to make sure you are being treated fairly. But even if you think what you are doing is legal or correct, think about how an adversary would paint the picture of your actions. With Peizer, the adversary would say, “Yeah, you set up an SEC trading plan, but you dumped millions of stock the next day, then your stock cratered.”

Things I think about

Five percent of babies born to married couples are from a different biological father.

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Black Jack Strategy Card
Same strategy used by the pros

The Last Days of Night
Historical fiction about Edison, Tesla, and the birth of electricity. One of my all-time favorites

Fooled by Randomness
The hidden power of chance in life and markets.

The Black Edge
Inside information and the quest to bring down SAC Capital

The Cult of We
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The Wave
In pursuit of rouges, freaks, and the giants of the ocean

See the full reading list here.