NEWARK, NJ. – Livingston resident Lawrence Grum, 49, pled guilty before U.S. District Judge Katherine S. Hayden in Newark federal court on Wednesdy to two counts of conspiracy to commit securities fraud and four counts of securities fraud. Michael Castelli, 49, of Morris Plains also pled guilty to two counts of conspiracy to commit securities fraud and five counts of securities fraud.
According to U.S. Attorney Paul J. Fishman, the two primary traders were involved in an extensive insider trading network and admitted to repeatedly using information divulged by insiders at pharmaceutical/medical technology firms operating in New Jersey.
From 2007 to 2012 Grum and Castelli profited from numerous trades made based on inside information provided to them by their friend, Mark Cupo, 52, of Morris Plains, 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, 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 Corporation, a leading medical technology firm with a large presence in New Jersey.
During the course of the multi-year insider trading operation, Grum and Castelli regularly received information including nonpublic information about Celgene’s future corporate acquisitions, quarterly earnings results and regulatory news. Lazorchak and Cupo provided this information, understanding that Grum and Castelli would trade based on the inside information and share their profits with them. 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.
One of the ways Grum and Castelli tried initially to conceal their involvement was by preparing binders of market research to show that their success was obtained through independent efforts.
But the material and nonpublic 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 role in providing Grum and Castelli inside information.
Grum and Castelli are each facing a potential maximum penalty of five years in proson and a fine of $250,000 for 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 Feb. 20, 2014 and 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, N.H., entered their guilty pleas before Judge Hayden on Oct. 7, 2013, and are scheduled to be sentenced on Jan. 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’s 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.