Two Defendants Admit Guilt in Insider Trading Scheme
|U.S. Attorney’s Office November 13, 2013|
NEWARK, NJ—The two primary traders in an extensive insider trading network admitted today to repeatedly using information divulged by insiders at pharmaceutical/medical technology firms operating in New Jersey, U.S. Attorney Paul J. Fishman announced.
Lawrence Grum, 49, of Livingston, New Jersey, pleaded guilty before U.S. District Judge Katharine S. Hayden in Newark federal court to an information charging him with two counts of conspiracy to commit securities fraud and four counts of securities fraud.
Michael Castelli, 49, of Morris Plains, New Jersey, pleaded guilty before Judge Hayden to an information charging him with two counts of conspiracy to commit securities fraud and five counts of securities fraud.
According to documents filed in this case and statements made in court:
From 2007 to 2012 Grum and Castelli executed numerous, profitable trades based on inside information fed to them by their friend, Mark Cupo, 52, of Morris Plains, New Jersey, who was an executive at Sanofi-Aventis, a global pharmaceutical company with United States operations based in New Jersey. Cupo, in turn, obtained much of the inside information from his friend and former employee, John Lazorchak, 43, of Long Valley, New Jersey, who was director of financial reporting at Celgene Corp., another global pharmaceutical company based in New Jersey. Lazorchak also obtained certain inside information from Mark Foldy, 43, of Morris Plains, a friend and former high school classmate of Lazorchak, who was a marketing executive at Stryker Corp., a leading medical technology business with a major division located in New Jersey.
During the course of the multi-year insider trading operation, Grum and Castelli regularly received from Lazorchak, via Cupo, material, non-public information about Celgene’s anticipated corporate acquisitions, numerous quarterly earnings results, and regulatory news, with the understanding that Grum and Castelli would trade based on the inside information and share their profits with Lazorchak and Cupo. Grum and Castelli also received inside information directly from Cupo regarding a corporate acquisition planned by Cupo’s employer, Sanofi, as well as inside information regarding a Stryker acquisition, which inside information Cupo had obtained from Lazorchak. Lazorchak, in turn, had obtained the Stryker inside information from his friend, Foldy.
Grum and Castelli made efforts to conceal their involvement in insider trading by, for example, compiling binders of market research to try to provide an independent basis for their knowledge of confidential, material non-public information.
The material, non-public information available to Grum and Castelli enabled them to reap substantial profits by engaging in lucrative securities trading ahead of the public announcement of several corporate acquisitions, numerous quarterly earnings results, and regulatory news. In addition, they shared a portion of their profits with Lazorchak and Cupo for their respective roles in providing Grum and Castelli inside information.
Grum and Castelli each face a maximum potential penalty of five years in prison and a fine of $250,000 on the conspiracy counts; and a maximum potential penalty of 20 years in prison and a fine of $5 million on the securities fraud counts. Grum and Castelli are both scheduled to be sentenced on February 20, 2014.
Grum and Castelli are the last of the six defendants charged with participating in this insider trading network to plead guilty. The other four defendants—Lazorchak, Cupo, Foldy, and Michael Pendolino, 44, of Nashua, New Hampshire—entered their guilty pleas before Judge Hayden on October 7, 2013, and are scheduled to be sentenced on January 20, 2014.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Aaron T. Ford in Newark, for the investigation leading to today’s guilty pleas. He also thanked the U.S. Securities and Exchange Commission’s Market Abuse Unit and Philadelphia Regional Office, under the direction of Daniel M. Hawke.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.