New Jersey Traders Gets Prison Terms in Insider CaseDavid Voreacos
Two New Jersey men were sentenced to prison for their role in an insider-trading ring that made $1.4 million in illicit profit off pharmaceutical and medical technology company tips.
Lawrence Grum, 50, must serve a year and a day while Michael Castelli, 50, was sentenced to nine months by U.S. District Judge Katharine Hayden in federal court in Newark, New Jersey. Both men pleaded guilty Nov. 13, admitting to taking part in a five-year scheme. All six men charged in November 2012 have pleaded guilty. Prosecutors said they used tips from executives at Celgene Corp., Sanofi and Stryker Corp.
“Mr. Grum does not strike me as a venal person in the real sense of the word,” Hayden said at a hearing today. “When he started, he couldn’t stop. The thrill, the high, is what kept him going, and not the spending. He was not a professional trader.”
Grum and Castelli admitted to fraud and conspiracy charges for trading on tips from a friend, Mark Cupo, 53, then an executive at Sanofi, prosecutors said. Cupo got tips from John Lazorchak, 43, a former director of financial reporting at Celgene. Lazorchak also got tips from Mark Foldy, 44, a former Stryker executive, prosecutors said.
The ring operated from 2007 to 2012 and involved two sets of high school friends and at least one witness who secretly recorded Grum for the Federal Bureau of Investigation, authorities said.
Grum, of Livingston, co-owned a company that distributed spa uniforms, slippers and robes. Castelli, of Morris Plains, was a home renovator who owned a construction company called Mutual Builders.
Hayden declined requests by prosecutors to sentence Grum and Castelli within an advisory range of 37 to 46 months.
“I am deeply, deeply sorry for the serious crime I have committed,” Grum said. “Once it started, I just couldn’t stop. It became an addiction. I never spent any of the money I made. I was simply saving for a house and my family.”
Grum will repay more than $700,000 he made, as well as profit earned by people he tipped and prejudgment interest, for a total of $838,000, said his attorney, Scott Resnik. Grum’s marriage is broken, he’s losing custody of his child and he has problems with alcohol, Resnik said.
“No aspect of my life has been unaffected,” Grum said. “I wish I could have just turned away from this at the moment I was asked, but I did not. This is something I will regret for the rest of my life.”
Castelli made more than $640,000 in illicit profit, prosecutors said. He apologized in a courtroom packed with supporters, including his 87-year-old mother, who has many health problems. Castelli’s lawyer, Daniel Stein, said he’s her primary caregiver.
“I would like to apologize for all of my actions,” Castelli said. “Because of my bad judgment, I have caused immense suffering to everyone I love.”
The tips involved Celgene’s announcement in November 2007 that it was buying Pharmion Corp. for $2.9 billion; Sanofi’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.
They also involved six quarterly earnings announcements 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.
“Over at least five years, with respect to 11 corporate news announcements, the defendant and co-conspirators exploited inside information,” Assistant U.S. Attorney Shirley Emehelu said during Castelli’s hearing. “This is a deliberate, calculated plan to make money by exploiting inside information repetitively.”
Lazorchak, Cupo, Foldy and another man who pleaded guilty, Michael Pendolino, 44, await sentencing.
The cases are U.S. v. Grum, 13-cr-00737, U.S. v. Castelli, U.S. v. Lazorchak, 13-cr-00656, and U.S. v. Pendolino, 13-cr-00657, U.S. District Court, District of New Jersey (Newark).