June 23 (Reuters) - A protege of former junk bond king

Michael Milken was sentenced on Monday to 3-1/2 years in prison

for insider trading at a healthcare company he once led, over

his use of a trading plan designed to protect executives against

that crime.

Terren Peizer, 65, the founder and former chief executive of

Ontrak ( OTRK ), was sentenced by U.S. District Judge Dale

Fischer in Los Angeles. She also imposed a $5.25 million fine

and forfeiture of more than $12.7 million of ill-gotten gains.

Peizer plans to appeal, his lawyer David Willingham said.

Federal prosecutors called the prosecution the first based

solely on the use of so-called 10b5-1 trading plans.

Named for a U.S. Securities and Exchange Commission rule,

such plans let insiders at public companies sell shares at

predetermined times to shield against accusations their sales

might be timed to negative corporate news.

Prosecutors charged Peizer with illegally avoiding losses by

selling about $20 million of Ontrak ( OTRK ) shares under plans he set up

in May and August 2021.

They said Peizer set up the first plan soon after being told

Ontrak's ( OTRK ) relationship with its largest customer Cigna ( CI ) was

deteriorating, and set up the second plan five minutes after

learning the insurer would likely sever ties.

Ontrak's ( OTRK ) share price fell more than 44% on August 19, 2021,

after the company disclosed the end of its relationship with

Cigna ( CI ), whose identity was revealed later.

Jurors found Peizer guilty last June of two counts of

insider trading and one count of securities fraud.

Prosecutors sought an approximately eight-year prison term,

while defense lawyers sought a "significant" period of home

detention.

Willingham, a partner at King & Spalding, called the outcome

a "true miscarriage of justice," saying Peizer disclosed his

trading plans to Ontrak ( OTRK ) management and obtained necessary

approvals.

"This case was a massive overreach, a waste of taxpayer

dollars, and sets a dangerous precedent that grossly distorts

the meaning of material, nonpublic information," Willingham

said. "We will not rest until we clear Mr. Peizer's name and

reputation."

Peizer worked under Milken at Drexel Burnham Lambert in the

1980s. In exchange for immunity from prosecution, he cooperated

in the government's criminal case against his former boss.

Milken pleaded guilty to securities fraud and served about

two years in prison. U.S. President Donald Trump pardoned him in

February 2020.