A former Celgene Corp. (CELG) director of financial reporting was sentenced to 16 months in prison for insider trading after his lawyer said he was a nerd who wasn’t motivated by typical drives like sex, drugs, gambling or greed.
John Lazorchak, 43, was sentenced today in federal court in Newark, New Jersey, where he pleaded guilty on Oct. 7, admitting that from September 2007 to July 2012 he passed inside tips about planned acquisitions, quarterly earnings and drug-approval developments of the pharmaceutical company Celgene.
“It was about a perverse, inexcusable need for acceptance,” Lazorchak’s attorney Lawrence Lustberg told the judge. “John Lazorchak was the chubby, redheaded guy in high school who was at the top of his class who, for lack of a better word, was a nerd. He strived to be a big shot. That explained psychologically why he did what he did. Does it excuse it? No.”
Six people have pleaded guilty for their role in an insider-trading ring that that made $1.4 million in illicit profit by trading on health-care stock tips. After Federal Bureau of Investigation agents approached him, Lazorchak cooperated and secretly helped prosecutors unravel a scheme that involved two sets of high school friends, prosecutors said.
Lazorchak recorded the middleman, Mark Cupo, 53, a former executive at Sanofi, another pharmaceutical firm. Cupo also got a 16-month prison term last week from the same judge. Both men faced from 46 to 57 months in prison under advisory guidelines. U.S. District Judge Katharine Hayden said today that while Lazorchak was “the insider guy in this paradigm,” she saw “the core of this being the Cupo-Lazorchak combine.”
On April 9, Hayden sentenced traders Lawrence Grum, 50, to a year and a day in prison, and Michael Castelli, 50, to nine months. Lazorchak also got tips from Mark Foldy, 44, a former executive at Stryker Corp., a medical technology firm, who was sentenced last week to six months’ home confinement.
While the ring involved people with knowledge and trust, as well as the traders, Lazorchak “did betray his position of trust in a grander fashion than anyone else,” she said.
“These are not evil men,” the judge said. “They are not men who are highly sophisticated. They took advantage of information that they had and they used it.”
The tips involved Celgene’s announcement in November 2007 that it was buying Pharmion Corp. for $2.9 billion, Sanofi (SAN)’s announcement in March 2010 that it was buying Chattem Inc. for $1.9 billion, Celgene’s news in June 2010 that it was buying Abraxis BioScience Inc. for $2.9 billion and Stryker’s announcement in May 2011 of plans to buy Orthovita Inc. for $316 million, according to the U.S. Securities and Exchange Commission, which sued the men.
The tips also involved six quarterly earnings reports by Celgene and the company’s announcement in June that it was withdrawing an application in Europe for expanded use of its blood cancer drug Revlimid, according to the government.
Lazorchak made “extraordinary” tapes of others and participated in “countless” meetings and phone calls with prosecutors, FBI agents and the SEC, Lustberg said.
He also told authorities about “another scheme involving accounting irregularities of another company with which he was familiar,” the lawyer said. Assistant U.S. Attorney Shirley Emehelu said Lazorchak provided information to investigators about “certain accounting irregularities.”
Lazorchak has lost a $235,000-a-year job, stock options worth $1.4 million, his marriage, his reputation and several close friends, Lustberg said. He said Lazorchak has endured cancer, the death of his mother and remorse over the impact of his crimes on his four children, ages 5 to 12.
Lazorchak has spoken about his crimes to students at Princeton University and elsewhere to warn them of the perils of insider trading, Lustberg said. He worked closely with federal agents to help them fully understand the case and is “completely devastated” by his crimes, the lawyer said.
“I’d like to apologize to the court and society as a whole,” Lazorchak said. “What I did was wrong. I’m deeply sorry, and I offer no excuse. I’ve tried to take steps to be somewhat better. At the end of the day, I simply should not have done what I did. I’m ashamed and obviously very remorseful.”
Lazorchak said he is struggling to move forward.
“No matter how successful I was, how fulfilling my family was, there was somehow an additional need to feel wanted, to feel part of something important, to feel accepted,” he said. “It was important to show my friends that I wanted to be their friend or be useful to them. I gave in to that temptation.”
At the end of the hearing, the judge said she still didn’t understand all of the dynamics of the scheme, in which prosecutors said Grum made more than $700,000 and Castelli more than $640,000 -- more than 90 percent of the government’s estimate of the total amount -- while Lazorchak and Cupo received envelopes of cash. Lazorchak made about $60,000 in the scheme, Lustberg said.
“I prefer to look at this particular scheme as one that has never fully been described or fully been admitted to,” Hayden said. “You guys are upfront guys and you’re running around with envelopes of cash. It’s so alien. That’s what drug dealers do.”
The cases are U.S. v. Grum, 13-cr-00737, U.S. v. Castelli, U.S. v. Lazorchak, 13-cr-00656, U.S. v. Pendolino, 13-cr-00657, U.S. v. Cupo, 13-cr-00658, and U.S. v. Foldy, 13-cr-00659, U.S. District Court, District of New Jersey (Newark).
To contact the reporter on this story: David Voreacos in federal court in Newark, New Jersey, at email@example.com.