Top executives at Celgene Corp and Sanofi are part of a group of "high school buddies" who have been charged by the US antitrust regulator of insider trading.
The US Securities and Exchange Commission has charged three health care company employees and four others in a New Jersey-based insider trading ring of various high school friends generating $1.7 million in "illegal profits and kickbacks". They stand accused of 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's director of financial reporting, John Lazorchak, Sanofi's director of accounting and reporting, Mark Cupo, and Mark Foldy, a marketing employee at Stryker Corp each illegally tipped confidential information about their companies. It is claimed that Cupo's friend Michael Castelli along with Lawrence Grum, who attended high school with Castelli, were the primary traders in the scheme.
It is alleged that Grum reassured Cupo that discovery of the scheme and consequent legal action was unlikely; he was quoted as saying that "at the end of the day, the SEC's got to pick their battle because they have a limited number of people and a huge number of investors to go after". The other two traders charged are Lazorchak's high school friends Michael Pendolino and James Deprado.
According to the SEC's complaint filed in New Jersey, the scheme began in late 2007 when Lazorchak and Cupo, who were friends and colleagues at Sanofi, discussed the former's new position at Celgene where he would have access to nonpublic information about M&A, notably Pharmion (which was indeed acquired in 2008 for $2.90 billion).
Among a long list of allegations, the SEC also claims that Cupo began tipping inside information about his employer in late 2009, when he learned that Sanofi was planning to acquire Chattem. The agency is seeking "permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and officer and director bars for Lazorchak, Cupo and Foldy".
Daniel Hawke, head of the SEC Enforcement Division's market abuse unit said that "this is yet another case where wrongdoers believed they could outsmart investigators by creating an elaborate smokescreen to hide their insider trading. Such tactics as using middlemen to pass inside information and compiling research to falsely justify illegal trades will not prevent lawbreakers from getting caught".
Brian Gill, a spokesman for Celgene, told Bloomberg that once the company learned that Lazorchak would be charged, he was fired immediately. In a statement sent to the news agency, he said that "it is our understanding that the investigation involved only one employee and not the company itself" and "Celgene is currently exploring its legal remedies".