New Jersey starting to handle more insider trading cases

NEW YORK Mon Nov 19, 2012 4:54pm EST

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NEW YORK (Reuters) - New Jersey's U.S. prosecutor's office is picking up more insider trading cases, edging into territory that has historically been dominated by the federal prosecutors in New York City.

The most recent case was unveiled on Monday when prosecutors in Newark announced charges against six people - three of whom were friends from high school - for their alleged roles in an insider-trading ring. The six have been charged for passing tips to each other about healthcare companies which generated $1.4 million in illegal profits.

New Jersey's growing clout in law enforcement could lead to deeper involvement in bigger cases.

While they are loathe to admit it, U.S. prosecutors around the country compete for cases and develop expertise in pursuing certain types of criminal activity.

In addition to the reputations they have developed for success in certain areas, there are several ways a U.S. attorney's office can stake a claim to a case. Prosecutors have a good chance of establishing jurisdiction over a case if the alleged crime was committed in their territory or if one of the alleged criminals is based there.

They can also be pulled in by the Federal Bureau of Investigation if a specific FBI field office takes the lead on an investigation.

"New Jersey is New York's next door neighbor, and many of the U.S. attorneys working in the U.S. office in New Jersey have experience working with New York law firms and with highly sophisticated financial matters," said Alan Zegas, a criminal defense lawyer in Chatham, New Jersey.

Zegas added that the head prosecutor for the district, Paul Fishman, had spent more than 10 years leading the white collar crime practice for the law firm Friedman Kaplan in New York.

"He has significant training. He's also very involved generally with the Justice Department in Washington," Zegas said.

Fishman left Friedman Kaplan to become U.S. Attorney for the District of New Jersey in 2009.

Largely due to its role as an international marketplace, New York is also a center for the prosecution of white collar crime, and federal prosecutors there have close working relationships with lawyers at the U.S. Securities and Exchange Commission, which most often initiates insider trading investigations.

While much of the SEC's manpower is in New York, its regional Philadelphia office also plays a major role in ferreting out insider trading activity. Philadelphia's regional director and market abuse unit chief, Daniel Hawke, has built a sophisticated computer system to analyze stock trading patterns for evidence of insider trading.

"The way we work up insider trading cases involves close coordination with criminal authorities and we have been lucky enough to develop a great relationship with the District of New Jersey," said Colleen Lynch, assistant regional director in the SEC's market abuse unit in Philadelphia.

HEALTHCARE DEALS

The SEC and the FBI have been engaged in a wide-ranging investigation into insider trading in healthcare and technology deals over the past five years.

The investigations have spurred multiple insider trading charges both in New York and in other parts of the country. The investigation is so large that one person familiar with it said New Jersey's involvement doesn't mean cases are being taken away from New York's Southern District; more insider trading cases are being unearthed than any one prosecutor's office can handle, the person said.

Thursday's case charged a ring of corporate executives and business owners with passing tips on healthcare deals to each other to reap more than $1.4 million in illegal profits.

Prosecutors charged John Lazorchak, Mark Cupo and Mark Foldy, who held positions at Celgene Corp, Sanofi S.A., and Stryker Corp, respectively, with running a network of inside information about their companies. They passed allegedly tips to two other men, Michael Castelli and Lawrence Grum, who traded on them and made "hundreds of thousands of dollars in profits," according to a press release issued by the prosecutors.

The five people in the network are all New Jersey residents. A sixth man, Michael Pendolino, who lives in Nashua, New Hampshire, is also accused of trading on tips from Lazorchak.

A seventh man was named in the civil suit filed by the SEC but not in the criminal suit.

The SEC filed its civil case in New Jersey in conjunction with the criminal proceedings the U.S. attorneys brought there.

"By funneling their inside information to a network of family and friends, the defendants and their associates reaped $1.4 million in profits at the expense of ordinary investors," Fishman said in a press release announcing the charges.

Lawyers for the men charged did not immediately respond to requests for comment.

(Reporting by Emily Flitter; Editing by Richard Chang)

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