Del. Suit Accuses Healthcare Data Co. Exec Of Insider Trading

By Jeff Montgomery

Law360 (February 21, 2024, 10:37 PM EST) — A stockholder launched a derivative lawsuit late Wednesday in Delaware’s Court of Chancery, alleging the founder of a behavioral healthcare data firm traded company shares using insider information and that nearly a dozen current and former directors and officers provided false and misleading disclosures about the business.

In his complaint, investor Edwin Dutkiewicz accused Terren S. Peizer, founder and ex-CEO of Ontrak Inc., and his personal investment vehicle, Acuitas Group Holdings LLC, of trading on his knowledge of souring and collapsing customer relationships to avoid millions of dollars in stock market losses. Dutkiewicz seeks the recovery of millions of dollars from Peizer and others on the company’s behalf. Peizer is also facing federal insider trading charges in California, the shareholder noted.

The suit asserts that 11 current or former executives breached their fiduciary duty through bad faith failures to establish a system or process for determining the legality of Acuitas’ stock sales and whether they were executed based on possession of material, nonpublic information. Dutkiewicz also said the other executives failed to fully disclose the company’s condition, economic outlook and risks.

They “owed fiduciary duties of oversight to Ontrak and its shareholders, as part of their fiduciary duty of loyalty,” the stockholder wrote. He added that the other executives failed to act on red flags raised by Peizer and Acuitas’ actions in seeking board approval for conversion of stock warrants and stock sales and that they falsely certified that the actions were taken without relying on inside information.

“The individual defendants, because of their positions of control and authority as directors and/or officers of Ontrak, were able to, and did, directly or indirectly, exercise control over the wrongful acts” described in the suit, the complaint read.

Ontrak operates what it describes as a leading artificial intelligence-supported and telehealth-enabled healthcare company that maintains a “predict-recommend-engage” platform for clients. The system was described as organizing and automating healthcare data integration and analytics for its users, as well as treatment.

According to the complaint, the company misrepresented the status of its relationships with its two top insurers, Aetna and Cigna. In mid-2020, Aetna cut off its data feed to Ontrak on new insured customers and sought corrective actions before terminating their contract outright in March 2021, according to the suit. “At the same time, Ontrak was desperately trying to save its relationship with Cigna,” the complaint said. “This nonpublic information regarding Cigna was particularly important,” because of the Aetna contract loss and public assurances that Ontrak was still “stable and growing.”

Of Ontrak’s four top customers, the complaint said, Aetna represented 58% of its revenue in 2020, and Cigna comprised about a third of the company’s projected 2021 revenues at the time.

The executives’ assertions that Ontrak had a “tremendous upside” were “materially false and misleading because by this date defendants knew that Cigna was reducing its referrals to Ontrak,” Dutkiewicz said.

Although other suits have been filed in the U.S. District Court for the Central District of California, Dutkiewicz’s complaint said, only one has been amended to include some of the events in the Delaware Complaint. None include Acuitas as a defendant.

Those suits, however, and a 50% plunge in the company’s stock price, damaged Ontrak and its stockholders, exposing those named to derivative damage liability, the new Delaware suit said.

Peizer, meanwhile, is facing prosecution by the U.S. Department of Justice in what was described as a
“groundbreaking” indictment in 2023. The government accused him of trading on Ontrak’s worsening business to avoid a $12.7 million personal stock loss.

The new suit in Delaware said demand for action by Ontrak would be futile because a majority of its directors face a substantial likelihood of liability for the company’s allegedly false and misleading statements and failures to assure that the company had control systems in place.

Current directors “prejudged the claims” for damages, with the company’s third quarter 2021 report, declaring at the time that “the company understands that defendants believe this action is without merit and intends to support them as they pursue all legal avenues to defend themselves fully,” the suit said.

Ontrak did not immediately respond to a request for comment.

The investor is represented by Seth D. Rigrodsky, Gina M. Serra and Herbert W. Mondros of Rigrodsky. Law PA, Lee Squitieri of Sguitieri & Fearon LLP and Fletcher Moore of Moore Law PLLC.

Counsel information for the defendants was not immediately available.

The case is Dutkiewicz v. Acuitas Group Holdings LLC, et al., case number 2024-0068, in the Court of Chancery, of the State of Delaware.