three pharmaceutical/Medical technology executives among six people charged with insider trading
FOR IMMEDIATE RELEASE |
November 19, 2012 |
Passed Inside Information to Extensive Network of Friends and Relatives, Netting
More Than $1.4 Million in Illicit Profits and Cash Kickbacks Over Five Years
NEWARK, N.J. – Three corporate executives, two business owners, and a health care professional who made more than $1.4 million in illegal profits from an extensive insider trading network surrendered to the FBI today, U.S. Attorney Paul J. Fishman announced.
John Lazorchak, 42, of Long Valley, N.J.; Mark Cupo, 51, of Morris Plains, N.J.; Lawrence Grum, 48, of Livingston, N.J.; Michael Castelli, 48, of Morris Plains, N.J.; Mark Foldy, 42, of Morris Plains, N.J.; and Michael Pendolino, 43, of Nashua, N.H, are each charged in a multi-count Criminal Complaint. Lazorchak, Foldy, and Pendolino are each charged with one count of conspiracy to commit securities fraud; Cupo, Grum, and Castelli are each charged with two counts of conspiracy to commit securities fraud. They are also all charged with multiple counts of securities fraud: Lazorchak, 26 counts; Cupo, 23 counts; Grum, 12 counts; Castelli, 11 counts; Foldy, two counts; and Pendolino, two counts.
All of the defendants surrendered to FBI agents and they are expected to appear later today before U.S. Magistrate Judge Joseph A. Dickson in Newark federal court.
“The Complaint alleges that three of the defendants exploited their access to sensitive, confidential information at two New Jersey-based pharmaceutical companies and a prominent medical technology company,” U.S. Attorney Fishman said. “By funneling their inside information to a network of family and friends, the defendants and their associates reaped $1.4 million in profits at the expense of ordinary investors. Fair markets deserve better.”
FBI Special Agent in Charge Michael B. Ward stated: “Investors have entrusted their life savings to the integrity of financial markets and the belief of a level playing field. Insider trading corrupts the process and tilts the playing field in favor of those privileged few with access to information not available to the public, and at the expense of unsuspecting and unknowing investors. It is important that those who manipulate that trust be held accountable in strictest accordance with the law.”
U.S. Securities & Exchange Commission Regional Director Daniel M. Hawke said: “Today’s case is a testament to the incredible hard work, close coordination and effective teamwork that leads to exemplary law enforcement results in hard to detect areas. We are fortunate to be able to collaborate with our colleagues in the U.S. Attorney’s Office for the District of New Jersey and the Federal Bureau of Investigation. They are great partners in our ongoing and future efforts to combat securities fraud.”
According to the Complaint:
Lazorchak was director of financial reporting at Celgene Corp., a global pharmaceutical company based in New Jersey. Mark Cupo, a friend and former boss of Lazorchak, held a similar position at Sanofi-Aventis, another New Jersey-based global pharmaceutical company. Mark Foldy – a friend and high school classmate of Lazorchak – was a marketing executive at Stryker Corp., a leading medical technology business with a major division located in New Jersey. In their respective positions, Lazorchak, Cupo, and Foldy became privy to certain material inside information – including merger and acquisition plans, quarterly earnings results and decisions on regulatory applications – before it was made public.
From 2007 to 2012, Lazorchak – who was at the center of the insider trading network – regularly disclosed nonpublic information about Celgene’s anticipated corporate acquisitions, numerous quarterly earnings results, and regulatory news, to Cupo, with the expectation and understanding that Cupo would pass the inside information to a “friend” to trade, and that this “friend” would share with Lazorchak and Cupo any profits trades in the securities of Celgene or its target acquisition companies.
There were, in fact, two “friends” to whom Cupo passed co-conspirators’ inside information: Grum and Castelli, both of whom traded on inside information and made hundreds of thousands of dollars in profits. Grum and Castelli also passed certain Celgene inside information to friends and family members, who also traded.
Lazorchak also funneled information to certain friends from his high school days. This branch of the trading network – Foldy, Pendolino, and two, uncharged co-conspirators, (CC-1, and CC-2) – received information from Lazorchak about Celgene’s anticipated acquisition of Pharmion Corp. in 2007. In the months leading up to the deal, Foldy, Pendolino, and CC-1 traded on the inside information for a profit and broadened the insider trading network by tipping family members and other friends, including high school friend CC-3, about the then-confidential acquisition.
In April 2008, after the November 2007 announcement of the Pharmion deal, Celgene, received a suspicious trading inquiry from the Financial Industry Regulatory Authority (“FINRA”), which included a list of individuals and entities that had traded ahead of the Pharmion Deal announcement. When shown the FINRA list by his employer, Lazorchak falsely claimed that he did not know anyone listed, even though it included high school friends Foldy and Pendolino.
Although the 2008 FINRA inquiry raised the threat that Lazorchak’s web of insider trading would be revealed, Lazorchak and his coconspirators continued their scheme. Starting in October 2009 and continuing to April 2012, Lazorchak passed inside information related to Celgene’s anticipated quarterly earnings to Cupo, so that Cupo could pass the information to Castelli and Grum.
In December 2009, Cupo divulged to Grum and Castelli material, nonpublic information from his own employer, Sanofi, about the company’s then-confidential plans to acquire Chattem Inc. Grum and Castelli then traded on the Chattem-related inside information prior to its public announcement, reaping substantial profits.
In May 2010, Lazorchak fed additional Celgene inside information – this time related to Celgene’s then-confidential plans to acquire Abraxis BioScience Inc. – to middleman Cupo, who funneled it to Grum and Castelli. They purchased Abraxis stock and sold it immediately after the June 30, 2010, announcement of the acquisition, which caused the stock price to rise. Grum and Castelli collectively made more than $150,000 in profits and paid thousands of dollars in cash kickbacks to Cupo, to be shared with Lazorchak.
Between February and March 2011, Foldy learned inside information through his employment at Stryker Corp. and divulged it to Lazorchak. Foldy informed Lazorchak of Stryker’s then-confidential plans to acquire Orthovita Inc. Foldy provided the inside information to Lazorchak as payback for the Pharmion deal back in 2007. Foldy also tipped other friends and family members about the Orthovita deal.
Lazorchak continued providing inside information throughout his network of friends by passing the Orthovita deal tip to Pendolino and Cupo, with the expectation that Lazorchak would get a share of the profits. Pendolino not only traded on the Pharmion-related inside information himself, but also passed it on to fellow high school friend CC-3 to trade. Grum and Castelli traded on the Orthovita-related inside information passed to them through Cupo and made substantial profits, giving a cash portion of the profits to Cupo, for distribution amongst Cupo and Lazorchak, as their middlemen, and Foldy, as the source of the non-public information.
The Complaint specifically identifies numerous transactions ahead of which Grum, Castelli, Foldy, and/or Pendolino traded between September 2007 and June 2012, as outlined in an appended chart.
The conspirators took great efforts to prevent detection of their insider trading activities, including: (a) the use of code words, such as “fat man,” by Lazorchak and Foldy to refer to inside information; (b) the compilation of binder(s) of market “research” by Grum and/or Castelli, and the prefacing of their communications with the term, “research,” to try to provide a false, independent basis for their knowledge of confidential, material nonpublic information; (c) Grum making false statements while being deposed by the Securities and Exchange Commission in October 2009; (d) the use of cash to pay kickbacks, frequently in installments, to Lazorchak, Foldy and Cupo; and (e) the use of payphones and an unaffiliated telephone number by Pendolino and CC-3 to discuss their plans to trade ahead of the Pharmion deal announcement.
Each conspiracy count carries a maximum potential penalty of five years in prison, a $250,000 fine, or twice the aggregate loss to victims or gain to the defendants. Each count of securities fraud carries a maximum potential penalty of 20 years in prison and a $5 million fine.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special
Agent in Charge Michael B. Ward in Newark, for the investigation leading to today’s charges and Complaint. 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.
The government is represented by Assistant U.S. Attorneys Shirley U. Emehelu, of the Economic Crimes Unit, and Judith H. Germano, chief of the U.S. Attorney’s Office Economic Crimes Unit, in Newark.
This case was brought in coordination with President Barack Obama’s Financial Fraud
Enforcement Task Force. President Obama established the interagency Financial Fraud
Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate
and prosecute financial crimes. The task force includes representatives from a broad range of
federal agencies, regulatory authorities, inspectors general, and state and local law enforcement
who, working together, bring to bear a powerful array of criminal and civil enforcement
resources. The task force is working to improve efforts across the federal executive branch, and
with state and local partners, to investigate and prosecute significant financial crimes, ensure just
and effective punishment for those who perpetrate financial crimes, combat discrimination in the
lending and financial markets, and recover proceeds for victims of financial crimes.
The charges and allegations contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
12-403
Defense counsel:
John Lazorchak: Lawrence S. Lustberg Esq., Newark, NJ
Mark Cupo: Joseph J. Bell Jr. Esq. and Joseph J. Bell, IV, Esq., Rockaway, NJ
Lawrence Grum: Scott A. Resnik Esq., New York, NY
Michael Castelli: Daniel C. Zinman Esq., New York, NY
Mark Foldy: Jonathan Marks Esq., New York, NY
Michael Pendolino: James S. Friedman Esq., Newark, NJ
APPROX. DATES OF PURCHASES |
ANNOUNCEMENT DATE |
SECURITY |
ILLICIT PROFIT |
Sept. 21, 2007- |
Nov. 19, 2007 |
Pharmion Corp. |
$189,154 |
Nov. 15-16, 2007 |
Nov. 19, 2007 |
Pharmion Corp. |
$28,328 |
Sept. 25, 2007- |
Nov. 19, 2007 |
Pharmion Corp. |
$139,465 |
Sept. 24, 2007- |
Nov. 19, 2007 |
Pharmion Corp. |
$14,683 |
Sept. 26, 2007- |
Nov. 19, 2007 |
Pharmion Corp. |
$37,453 |
Oct. 21, 2009 |
Oct. 22, 2009 |
Celgene Corp. |
$2,471 |
Oct. 21, 2009 |
Oct. 22, 2009 |
Celgene Corp. |
$2,816 |
Dec. 18, 2009 |
Dec. 21, 2009 |
Chattem Inc. |
$27,307 |
Dec. 18, 2009 |
Dec. 21, 2009 |
Chattem Inc. |
$23,078 |
Apr. 27-28, 2010 |
April 29, 2010 |
Celgene Corp. |
$9,660 |
Apr. 27-28, 2010 |
April 29, 2010 |
Celgene Corp. |
$9,009 |
May 24, 2010- |
June 30, 2010 |
Abraxis BioScience Inc. |
$123,293 |
May 24, 2010- |
June 30, 2010 |
Abraxis BioScience Inc. |
$107,924 |
July 27-28, 2010 |
July 29, 2010 |
Celgene Corp. |
$7,673 |
July 21-28, 2010 |
July 29, 2010 |
Celgene Corp. |
$4,029 |
Oct. 26-27, 2010 |
Oct. 28, 2010 |
Celgene Corp. |
$18,647 |
Oct. 8-28, 2010 |
Oct. 28, 2010 |
Celgene Corp. |
$22,852 |
Apr. 25, 2011- |
May 16, 2011 |
Orthovita Inc. |
$188,651 |
Apr. 25, 2011- |
May 16, 2011 |
Orthovita Inc. |
$180,152 |
May 3, 2011 |
May 16, 2011 |
Orthovita Inc. |
$25,948 |
July 7-27, 2011 |
July 28, 2011 |
Celgene Corp. |
$28,102 |
July 7-27, 2011 |
July 28, 2011 |
Celgene Corp. |
$15,631 |
Apr. 4-25, 2012 |
April 26, 2012 |
Celgene Corp. |
$54,424 |
Apr. 4-25, 2012 |
April 26, 2012 |
Celgene Corp. |
$52,208 |
June 15-20, 2012 |
June 21, 2012 |
Celgene Corp. |
$87,569 |
June 15-20, 2012 |
June 21, 2012 |
Celgene Corp. |
$83,222 |
TOTAL: $1,483,749 |
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