NEWARK, NJ – Lawrence Grum, 50, of Livingston, a primary trader in an extensive insider trading network, was sentenced to one year and one day in prison for repeatedly using information divulged by insiders at harmaceutical/medical technology firms operating in New Jersey. Michael Castelli, 50, of Morris Plains, was also sentenced to nine months in prison.
The announcement was made Wednesday by U.S. Attorney Paul J. Fishman. Previously, Grum pleaded guilty before U.S. District Judge Katharine S. Hayden to information charging him with two counts of conspiracy to commit securities fraud and four counts of securities fraud. Castelli previously pleaded guilty before Judge Hayden to information charging him with two counts of conspiracy to commit securities fraud and five counts of securities fraud. Today, Hayden imposed both sentences in Newark federal court. In addition to the prison terms, Hayden sentenced Grum and Castelli to two years each of supervised release.
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, 53, 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 the director of financial reporting at Celgene Corp., another global pharmaceutical company based in New Jersey. Lazorchak also obtained certain inside information from Mark Foldy, 44, 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 Cupo had obtained from Lazorchak regarding a Stryker acquisition. 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 nonpublic 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 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 awaiting sentencing.
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, under the direction of Daniel M. Hawke.
The government is represented by Assistant U.S. Attorney Shirley U. Emehelu of the U.S. Attorney’s Office Economic Crimes Unit in Newark.
Defense counsel includes: Lawrence Grum: Scott A. Resnik Esq., New York; Michael Castelli: Daniel Zinman Esq. and Daniel Stein Esq., New York; John Lazorchak: Lawrence S. Lustberg Esq., Newark; Mark Cupo: Joseph J. Bell Jr. Esq. and Joseph J. Bell, IV Esq., Rockaway, N.J.; Mark Foldy: Jonathan Marks Esq., New York,; and Michael Pendolino: James S. Friedman Esq., Newark.
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, click HERE.