Seven New Jersey Buds 'Orchestrate' a Play on Health Care Stocks to 'Tune' of $1.7Mn.

[ by Howard Haykin ]

High school friends who had known each other for decades, carried out a "carefully orchestrated insider trading scheme" that spanned 5 years, involved 3 health care company insiders and 11 corporate events.   They avoided detection for several years through use of middlemen, extraneous trading, and creation of false research files.

Profiles of Defendants.  

1.  John Lazorchak, 42.   Long Valley, NJ.   A CPA employed by Celgene in its financial reporting department since August 2007 and has been Director of Financial Reporting since, at least, February 2008, for health care company, Celgene.  Previously worked with Cupo at Sanofi.  Attended high school with Pendolino, Foldy, Deprado.

2.  Mark Cupo, 51.  Morris Plains, NJ.  A CPA who's the Director of Accounting and Reporting at Sanofi.  Is friends with Castelli, previously worked with Lazorchak at Sanofi, and attends meetings of a winemaking club with both Castelli and Tippee 5.

3.  Mark Foldy, 42.  Morris Plains, NJ.   Employed by Stryker in its marketing department. Attended high school with Defendants Pendolino, Lazorchak, and Deprado, and is related to Tippee 6.

4. Michael Castelli, 48.  Morris Plains, NJ.  Friends with Cupo, attended high school with Grum, and maintained office space in the same building as Grum at times relevant to this Complaint.  Also attends meetings of a winemaking club with both Cupo and Tippee 5.

5.  Lawrence Grum, 48. Livingston, NJ.   Obtained his Series 7 license circa 1987.  Worked as an MBS analyst and as a securities trader between 1986 and 1990.  Attended high school with Castelli, maintained office space in the same building as Castelli at times relevant to this Complaint, is related to Tippee 1 and Tippee 7, and is friends with Tippee 2 and Tippee 5. 

6.  Michael Pendolino, 43.  Nashua, NH.    Attended high school with Lazorchak, Foldy, and Deprado, was friends with Tippee 3, and was business associate of Tippee 4.

7.  James Deprado, 42.  Leesburg, VA.  Attended high school with Lazorchak, Pendolino, and Foldy.
 

SEC Findings and Allegations.    Celgene Corporation's director of financial reporting John Lazorchak, Sanofi S.A.'s director of accounting and reporting Mark Cupo, and Stryker Corporation's marketing employee Mark Foldy each is alleged to have illegally tipped confidential information about their companies for the purpose of insider trading.   Usually the nonpublic information involved upcoming mergers or acquisitions, but Lazorchak also tipped confidential details about Celgene's quarterly earnings and the status of a Celgene application to expand use of a drug. 

Trading was carefully orchestrated so there was usually someone acting solely as a non-trading middleman who received the nonpublic information from the insider and tipped others.  They hoped to avoid detection with no direct connection between the insiders and the traders, and the insiders were later compensated for the inside information with cash payments made in installments to avoid any scrutiny of large cash withdrawals.

The scheme supposedly began in late 2007 when Lazorchak and Cupo - friends and colleagues at Sanofi - discussed Lazorchak's new position at Celgene where he'd have access to nonpublic M&A information. 

• Lazorchak initially told Cupo about a possible acquisition by Celgene of another pharmaceutical company. 

• Cupo discussed Lazorchak's position with Castelli, a friend with whom he attends winemaking club meetings. 

• Castelli brought in Grum, who he considered a sophisticated trader with knowledge of the securities industry.

• Castelli and Grum devised the scheme in which Lazorchak tipped Cupo with nonpublic Celgene-related information.

• Cupo, as the middleman, tipped Castelli and Grum so they could illegally trade.

• Castelli and Grum paid Cupo for his tips, and gave Cupo money to pass along to Lazorchak for the initial tips.

• Lazorchak never knew the identities of Castelli or Grum, but was aware that Cupo was passing confidential Celgene information to other traders.

• Lazorchak's high school friend Foldy entered the scheme in 2007, when Lazorchak tipped him with confidential details about one of the impending mergers.

• Foldy illegally traded on the information prior to the public announcement of the deal.

• Lazorchak and Foldy devised and used code phrases while conversing to identify instances when Lazorchak was passing inside information or Foldy was seeking more details.

• After the illegal trading occurred and Foldy obtained illicit profits of $14,500, Lazorchak repeatedly demanded that Foldy compensate him for the inside information.

• Foldy ultimately paid Lazorchak at least $500 and later returned the favor with illegal tips of confidential information about a tender offer involving his employer, Stryker Corp.

• Lazorchak acted as a middleman and did not trade, instead tipping Pendolino so he could trade on the nonpublic information.

• Pendolino in turn tipped Deprado, who also traded.

• Lazorchak additionally tipped Cupo, who did not trade but acted as a middleman and tipped Castelli and Grum, who both traded.

All told, the SEC Complaint is 53 pages long.  So, we'll leave it up to you, should you seek further details. 

If so,  go to:   [ SEC Complaint ]    [ SEC PR 12-234, 11/19/12 ].