Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Monday, November 19, 2012

SEC Charges Ring of High School Buddies with Insider Trading in Health Care Stocks

The SEC today charged three health care company employees and four others in a insider trading ring of high school buddies," generating $1.7 million in illegal profits and kickbacks by trading in advance of 11 public announcements involving mergers, a drug approval application, and quarterly earnings of pharmaceutical companies and medical technology firms.

The SEC alleges that Celgene Corporation's director of financial reporting John Lazorchak, Sanofi S.A.'s director of accounting and reporting Mark S. Cupo, and Stryker Corporation's marketing employee Mark D. Foldy each illegally tipped confidential information about their companies for the purpose of insider trading. Typically 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 the use of its drug Revlimid. According to the SEC, the trading was orchestrated so there was usually someone acting solely as a non-trading middleman who received the nonpublic information from the insider and tipped others. The insiders were later compensated for the inside information with cash payments made in installments to avoid any scrutiny of large cash withdrawals.

The SEC alleges that Cupo's friend Michael Castelli along with Lawrence Grum, who attended high school with Castelli, were the primary traders in the scheme. The other two traders charged are Lazorchak's high school friends Michael T. Pendolino and James N. Deprado. In a parallel criminal action, the U.S. Attorney's Office for the District of New Jersey today announced criminal charges against Lazorchak, Cupo, Foldy, Castelli, Grum, and Pendolino.

The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and officer and director bars for Lazorchak, Cupo, and Foldy.

http://lawprofessors.typepad.com/securities/2012/11/sec-charges-ring-of-high-school-buddies-with-insider-trading-in-health-care-stocks.html

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