A pair of stock traders drew jail time on insider trading charges that they used tips from a former Stryker (NYSE:SYK) marketing executive to make illicit trades ahead of the medical device company’s 2011 acquisition of Orthovita.
Lawrence Grum was sentenced to a year and a day and Michael Castelli to 9 months in jail by Judge Katharine Hayden of the U.S. District Court for New Jersey.
Grum, a small business owner, and Castelli, a building contractor, each admitted to 2 counts of conspiracy to commit securities fraud in November 2013. Grum also copped to 4 counts of securities fraud and Castelli admitted to 5 counts of securities fraud, according to the office of New Jersey district attorney Paul Fishman.
The duo allegedly acted on tips from former Stryker marketing executive Mark Foldy about the impending, $316 million deal for Orthovita in May 2011, according to prosecutors, who alleged that the scheme generated $1.7 million in illegal profits and kickbacks. Grum and Castelli had faced a maximum of 5 years in prison and a fine of $250,000 on the conspiracy counts and a maximum of 20 years in prison and a fine of $5 million on the securities fraud counts.
But Hayden declined to impose the maximum sentences after the defendants expressed remorse, according to Bloomberg.
"I am deeply, deeply sorry for the serious crime I have committed," Grum said, according to the news service. "Once it started, I just couldn’t stop. It became an addiction. I never spent any of the money I made. I was simply saving for a house and my family. … No aspect of my life has been unaffected," Grum said. "I wish I could have just turned away from this at the moment I was asked, but I did not. This is something I will regret for the rest of my life."
"Mr. Grum does not strike me as a venal person in the real sense of the word," Hayden said. "When he started, he couldn’t stop. The thrill, the high, is what kept him going, and not the spending. He was not a professional trader."
Grum must repay the $838,000 he reaped, according to the report; Castelli made more than $640,000 in illicit profit.
"I would like to apologize for all of my actions," Castelli said. "Because of my bad judgment, I have caused immense suffering to everyone I love."
Ex-Stryker executive Foldy allegedly plotted with Sanofi (NYSE:SNY) accounting & reporting director Mark Cupo and Celgene (NSDQ:CELG) financial reporting director John Lazorchak, illegally leaking confidential information about their companies to Grum and Castelli, high school friends who conducted the trades.
Foldy, Lazorchak, Cupo and another defendant, Michael Pendolino, pleaded guilty in October 2013. They are still awaiting sentencing.