Morris Plains Man Pleads Guilty to Insider Trading Scheme

The two primary traders in an extensive insider trading network admitted Wednesday to repeatedly using information divulged by insiders at pharmaceutical and medical technology firms operating in New Jersey, according to U.S. Attorney Paul J. Fishman.

Michael Castelli, 49, of Morris Plains, pleaded guilty before U.S. District Judge Katharine S. Hayden in Newark federal court to two counts of conspiracy to commit securities fraud and five counts of securities fraud.

Lawrence Grum, 49, of Livingston, pleaded guilty to two counts of conspiracy to commit securities fraud and four counts of securities fraud.

According to court documents, Grum and Castelli executed numerous, profitable trades between 2007 to 2012 that were based on inside information fed to them by their friend, Mark Cupo, 52, of Morris Plains, who was an executive at Sanofi-Aventis, a global pharmaceutical company based in New Jersey.

Cupo obtained much of the inside information from his friend and former employee, John Lazorchak, 43, of Long Valley, who was director of financial reporting at Celgene Corp., another global pharmaceutical company based in New Jersey, court documents said.

Lazorchak also obtained certain inside information from Mark Foldy, 43, of Morris Plains, a friend and former high school classmate of Lazorchak, who was a marketing executive at Stryker Corp., a leading medical technology business with a major division located in New Jersey, court documents said.

Grum and Castelli made efforts to conceal their involvement by, for example, compiling binders of market research to try to provide an independent basis for their knowledge of confidential, material nonpublic information, court documents said.

According to Fishman, the material, nonpublic information available to Grum and Castelli, enabled them to reap substantial profits by engaging in lucrative securities trading ahead of the public announcement of several corporate acquisitions, numerous quarterly earnings results, and regulatory news. In addition, they shared a portion of their profits with Lazorchak and Cupo, for their respective role in providing Grum and Castelli inside information, Fishman said.

Grum and Castelli each face a maximum potential penalty of five years in prison and a fine of $250,000 on the conspiracy counts; and a maximum potential penalty of 20 years in prison and a fine of $5 million on the securities fraud counts. Grum and Castelli are both scheduled to be sentenced on Feb. 20, 2014.

Grum and Castelli are the last of the six defendants charged with participating in this insider trading network to plead guilty. The other four defendants: Lazorchak, Cupo, Foldy, and Michael Pendolino, 44, of Nashua, N.H., entered their guilty pleas before Judge Hayden on Oct. 7 and are scheduled to be sentenced on Jan. 20, 2014.