UPDATE 1-High school pals get prison in New Jersey insider trading case

Wed Apr 9, 2014 4:29pm EDT

(Adds comment from defense attorney, 10th paragraph)

By Jonathan Stempel

April 9 (Reuters) - Two New Jersey men who were the main traders in an insider trading ring that focused on pharmaceutical and medical technology stocks and generated $1.48 million of illegal profit were sentenced to prison on Wednesday, U.S. Attorney Paul Fishman in New Jersey said.

Lawrence Grum, 50, was sentenced to one year and one day in prison, while his high school classmate Michael Castelli, also 50, received nine months.

Both men were sentenced by U.S. District Judge Katharine Hayden in Newark, New Jersey. Prosecutors had sought prison terms of roughly three to four years, as recommended under federal guidelines, for the defendants.

Grum, of Livingston, New Jersey, had pleaded guilty to four counts of securities fraud and two counts of conspiracy. Castelli, of Morris Plains, New Jersey, had pleaded guilty to five counts of securities fraud and two counts of conspiracy.

All six people charged in the scheme have pleaded guilty.

Investigators said the scheme ran from 2007 to 2012 and involved trades ahead of quarterly earnings results, acquisitions and other news from companies including Celgene Corp, Sanofi SA and Stryker Corp.

According to prosecutors, Grum and Castelli made numerous profitable trades based on tips from insiders or middlemen, and tried to conceal their tracks by compiling binders of market research to suggest an independent basis for their trades.

The men were accused of trading on tips from Mark Cupo, then a Sanofi executive, who in turn obtained some tips from John Lazorchak, then Celgene's director of financial reporting.

Lazorchak, meanwhile, also got tips from Mark Foldy, then a Stryker executive, prosecutors said.

"We were gratified that our client got a substantial reduction from the recommended guideline sentence," Scott Resnik, a partner at Katten Muchin Rosenman who represents Grum, said in an interview. "It reflects his exceptional steps to take responsibility, his lifetime of good work and charitable deeds, and his agreement to disgorge his trading profits."

Daniel Stein, a partner at Richards Kibbe & Orbe who represents Castelli, did not immediately respond to requests for comment.

Cupo, 53, of Morris Plains; Foldy, 44, also of Morris Plains; Lazorchak, 43, of Long Valley, New Jersey; and Michael Pendolino, 44, a chiropractor from Nashua, New Hampshire, pleaded guilty to involvement in the scheme in October. They await sentencing.

The cases are in the U.S. District Court, District of New Jersey. They are U.S. v. Grum, No. 13-00737; and U.S. v. Castelli, No. 13-00738. (Reporting by Jonathan Stempel in New York; Editing by Jonathan Oatis)

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