LOS ANGELES — A stock analyst testified before a California federal jury on Thursday, revealing that he noticed Ontrak Inc. founder Terren Peizer selling company shares just weeks before Cigna announced the termination of its $90 million contract with Ontrak.

The trial against Peizer, who faces three counts of securities fraud, began on Tuesday. Prosecutors allege that Peizer used two Rule 10b5-1 plans to sell shares between May and August 2021 while in possession of nonpublic information about the impending loss of Ontrak’s leading customer, Cigna. This move, they claim, helped him avoid $12 million in losses.

Rule 10b5-1 plans allow corporate insiders to pre-schedule trades provided they certify they are unaware of any material, nonpublic information at the time.

Ontrak, a provider of behavioral health services, heavily relied on its $90 million contract with Cigna, which it signed in 2020. During the trial, defense attorneys argued that Peizer sold the shares to avoid losing stock warrants set to expire later in the year, not because of insider knowledge about Cigna.

Sean Dodge, a stock analyst at RBC Capital Markets, testified that he observed Peizer’s trading activity through disclosure forms. Dodge said he had private and public calls with Ontrak’s executive team, including Peizer, and noted that the company seemed focused on expanding its business with major clients like Cigna and Aetna in early 2021.

Dodge recounted how Ontrak's stock prices plunged 46% after Aetna unexpectedly ended its contract in March 2021. Following this, Ontrak adjusted its revenue guidance from $100 million to $85 million.

Despite reassurances from Ontrak executives about continued growth opportunities with Cigna, Dodge testified that no one disclosed issues with Cigna, such as reduced patient referrals and halted expansion plans. He stated that these issues were absent from Ontrak’s August 2021 securities forms.

During an August 2021 private call, Dodge queried Ontrak’s executives about Peizer’s stock sales, as investors had noticed and were concerned. Executives explained that Peizer was selling expiring stock warrants, not regular shares.

On August 19, 2021, news broke that Cigna was ending its deal with Ontrak, causing stock prices to drop 45%. Prosecutors asked Dodge if he was surprised by the termination, to which he replied affirmatively, citing previous positive indications from Ontrak regarding Cigna.

Defense attorney Jamie Lang of King & Spalding LLP cross-examined Dodge, pointing out that Ontrak's August 2021 SEC form disclosed risks of losing major customers and that Peizer’s trades involved expiring stock warrants, which he needed to exercise to avoid losing their value.

Lang highlighted that the majority of Peizer’s trades occurred after Cigna’s termination was announced, suggesting that the sales were not based on insider knowledge.

The trial continues on Friday.

The government is represented by Matthew Reilly and Della G. Sentilles of the U.S. Department of Justice, and Ali Moghaddas of the U.S. Attorney's Office for the Central District of California.

Peizer is represented by David K. Willingham, Yelena Kotlarsky, and Jamie A. Lang of King & Spalding LLP, and Stephen A. Best, Angela M. Papalaskaris, and Stephen R. Cook of Brown Rudnick LLP.

The case is U.S. v. Terren Peizer, case number 2:23-cr-00089, in the U.S. District Court for the Central District of California.