Prison for 2 NJ Pharma and MedTech Insider Traders

Two New Jersey men who profited from insider trading involving the stock of Celgene, Stryker, and Sanofi-Aventis have been sentenced to prison terms for their involvement in the scheme, which netted a total of about $1.4 million in illegal profits. Four codefendants are still waiting to learn their fates.

After pleading guilty to two counts of conspiracy to commit securities fraud and four counts of securities fraud, Lawrence Grum, 50, of Livingston, NJ, was sentenced by U.S. District Judge Katharine Hayden in a Newark federal court to one year and a day in prison. Michael Castelli, also 50, of Morris Plains, NJ, who pleaded guilty to two counts of conspiracy to commit securities fraud and five counts of securities fraud, will serve 9 months. Both must also serve two years of supervised release following the prison terms. A Bloomberg News story said that Grum must repay a total of $838,000, including interest, and Castelli, more than $640,000.

According to a report from the U.S. Attorney's Office, District of New Jersey, 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 received much of the inside information from John Lazorchak, 43, of Long Valley, NJ, his friend and former employee, 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, 44, of Morris Plains, a friend and former high school classmate, who was a marketing executive at medical device manufacturer Stryker Corp.

Grum and Castelli went to considerable lengths to camouflage their illegal activities, the prosecutors said, compiling binders of market research and email records in an attempt to provide an independent basis for their knowledge of "confidential, material nonpublic information." Unnamed authorities told Bloomberg that at least one witness secretly recorded Grum for the FBI.

Grum and Castelli regularly received information about Celgene's anticipated corporate acquisitions, numerous quarterly earnings results, and regulatory news from Lazorchak via Cupo. They also received inside information from Cupo regarding a corporate acquisition planned by Cupo's employer, Sanofi, as well as inside information from Lazorchak regarding a Stryker acquisition that he had obtained from his friend, Foldy.

Lazorchak, Cupo, Foldy and another man who pleaded guilty, Michael Pendolino, 44, still await sentencing.

Stephen Levy is a contributor to Qmed and MPMN.