Over the past several years, much has been made about the supposed incompetence of the Securities and Exchange Commission. The regulator failed to realize Bernie Madoff had been running an illegitimate Ponzi scheme, despite more or less being told by Bernie Madoff himself, “I am running an illegitimate Ponzi scheme.” It went after David Einhorn, when it should have been going after Allied Capital, the company the hedge fund manager told them was committing fraud. Its proposal for stepping up investigators’ games was to start a Fraud College.* Until recently, it employed individuals in the office responsible for “ensuring exchanges follow guidelines concerning…computer audits, security, and capacity” who had “little or no experience with exchange technical matters.” At this point, there have been so many stories about the SEC getting things wrong that the default is to assume it fucked up, even when that is not actually the case. What’s more, even when Team Schapiro is on top of its game, resources are so strained that many scams that should be caught fall through the cracks. So you can maybe understand why a group of “high school buddies,” along with a few other guys they recruited at wine club, who were engaged in securities fraud for several years, weren’t too worried about getting caught.

The group, which included three health-care executives, a chiropractor and the owner of a spa-supply company called Yeah Baby, allegedly made more than $1.7 million by passing on secret information about mergers and acquisitions and earnings announcements of at least seven pharmaceutical companies, according to prosecutors and the Securities and Exchange Commission. The alleged scheme included high-school friends of Mr. Lazorchak, his former boss and members of his former boss’s wine-making club. Those charged are: Mr. Lazorchak, who was the director of financial reporting at Celgene; Mark Cupo, Mr. Lazorchak’s former boss at Sanofi-Aventis, where he was director accounting and reporting; Michael Castelli, Mr. Cupo’s friend from his wine-making club; Michael Pendolino, Mr. Lazorchak’s high-school friend who now works as a chiropractor in New Hampshire; Mark Foldy, a former marketing executive at StrykerCorp.; and Yeah Baby owner Lawrence Grum who was introduced to Mr. Cupo by Mr. Castell. Mr. Lazorchak, 42 years old, attended Colonia High School in Colonia, N.J., along with Messrs. Pendolino, 43, and Foldy, 42, according to the criminal complaint. Messrs. Castelli, 48, and Grum, 48, were classmates at another unnamed high school, according to the SEC…As recently as two months ago, one of the alleged members of the scheme was confident that investigators would fall short of cracking the case. “If they ever come to me, I know what I’m doing,” Mr. Grum told another person involved in the alleged scheme who had agreed to cooperate with criminal investigators, according to the complaint…Ultimately, Mr. Grum said the SEC wouldn’t come after them. “The SEC’s got to pick their battle because they have a limited number of people and huge numbers of investors to go after,” he said.

Another reason for Grum’s cockiness? The code words and phrases he and his buds used that they were prettay, prettay, prettay sure no one could crack.

According to a criminal complaint filed in Newark, N.J., by U.S. Attorney Paul Fishman, the men allegedly used codes or incorporated secret information in legitimate social conversations at basketball games, dinner with friends or morning jogs. In one case, one member of the alleged scheme sent an unindicted co-conspirator the number of a pay phone outside a Virginia K-Mart store to communicate. They referred to at least one financial deal as the “Fat Man,” and used phrases like “fat man has a friend” and “the fat man walks alone” to update one another on the status of the deals, according to the complaint. The words “I have some vacation pictures for you” were allegedly used to refer to cash payments made to tippers in amounts ranging from $500 to $10,000 at a time.

So:

1. Bless these idiots’ hearts.

2. Are we to assume “The Fat Man is taking a long lunch” meant “buy 1,000 shares,” “I gotta great shot of you in the pool with the swim-up bar” was code for “something huge is coming,” and “The Fat Man switched to fat-free ranch” was what they said when they got a tip that a takeover was about the fall through?

3. Another reason everyone was confident that they’d never never do time, even on the off-chance the SEC came sniffing? They had binders.

Those who carried out the trading allegedly tried to hide their activity by compiling binders of research to serve as a false basis for their trading and actively trading in some securities to create a pattern of long-standing positions in a stock, prosecutors said…In the recorded conversation, Mr. Grum said: “Search my phone records, search anything—I know nobody at that company,” he said. “There’s no link,’ he said. “And that’s what they do to link up everybody. That’s how they triangulate,” he said, according to the complaint. Mr. Grum explained that he had maintained a notebook for five years that included research that could be used to justify the alleged trades.

Anyway, this should all make for a great story at the Colonial High Class of ’88′s 25 year reunion, coming up next year!

SEC Charges Ring of High School Buddies with Insider Trading in Health Care Stocks [SEC]
Securities And Exchange Commission v. John Lazorchak, Mark Cupo, Mark Foldy, Michael Castelli… [SEC]
Buddies, Colleagues and, Prosecutors Allege, Inside Traders [WSJ]
Celgene, Sanofi Executives Charged With Insider Trading [Bloomberg]
*Though sadly I don’t think this ever happened.

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Comments (30)

  1. Posted by Lowly Assistant | November 20, 2012 at 11:59 AM

    To the dudes in the Whalers jerseys who are pretending to survey my rink: FYI – "100% micro polyester, YOLO" is a real thing and not some fucking code language.

  2. Posted by Lowly Assistant | November 20, 2012 at 12:00 PM

    Errr…

    Signed,
    Steve Cohen

    (I'll show myself out)

  3. Posted by PippyLongSausage | November 20, 2012 at 12:15 PM

    Would this quote from the complaint serve to explain the meaning of irony?

    Grum said, "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."
    http://www.sec.gov/news/press/2012/2012-234.htm

  4. Posted by Dateraider | November 20, 2012 at 12:19 PM

    Why are the chairs in the swim-up bar all yellow. Oh…

  5. Posted by guest | November 20, 2012 at 12:19 PM

    Thanks for bringing that to our attention, no one would have ever noticed it otherwise (unless they'd read the first excerpt in the above article).

  6. Posted by Bejujular | November 20, 2012 at 12:24 PM

    SEC case breaks down when code revealed to be discussing noted high school alumnus Chris Christie.

  7. Posted by guest | November 20, 2012 at 12:27 PM

    It would serve the explain the definition of "boy do I have egg on my face."

  8. Posted by PippyLongSausage | November 20, 2012 at 12:35 PM

    Whooops. I'll show myself out.

  9. Posted by Guest | November 20, 2012 at 12:40 PM

    That nobody today puts legitimate research in binders was the SEC's 1st clue that something was amiss.

  10. Posted by guest | November 20, 2012 at 12:40 PM

    Feel like the ponzi scheme was in-fact QUITE legitimate….

  11. Posted by guest | November 20, 2012 at 12:47 PM

    Serious question: are all the people getting arrested for insider trading the tip of a giant iceberg, or do they represent the (large) majority of the guilty (since a middling high school student could write the algorithm that would spot suspicious trading)?

  12. Posted by guest | November 20, 2012 at 12:54 PM

    No, it's okay. I shouldn't have lost my temper.

    -guest who's trying to work on that kind of thing

  13. Posted by Guest | November 20, 2012 at 12:58 PM

    The fat man craves back door boloney.

  14. Posted by Innuendo? | November 20, 2012 at 1:02 PM

    They represent the giant tip of the majority of the majority of the iceberg.

  15. Posted by Sandels | November 20, 2012 at 1:11 PM

    I've had the time of my life, and I owe it all to Jews. Yeah!

  16. Posted by guest | November 20, 2012 at 1:37 PM

    The SEC has ways of shutting that down.

    -Todd Akin

  17. Posted by Guest | November 20, 2012 at 1:45 PM

    The British wags who were getting two-timed, making off with over 2 million pounds in a single trade >>>>> this group of dumbasses who took several years to share $1.7M

    I love the "If we get caught we have binders…" Do you keep a legal team in there too? That share of $1.7M doesn't last very long when on trial v. US Government

  18. Posted by Hobbes | November 20, 2012 at 1:59 PM

    What came first; binders full of women, or binders full of research?

  19. Posted by Bud Fox | November 20, 2012 at 2:22 PM

    Blue Horseshoe loves Anacott Steel

  20. Posted by Guest | November 20, 2012 at 2:37 PM

    Binders full of women who are willing to insider trade in exchange for trips, new diaries and the love of a good man?

  21. Posted by W. Mitt Romney. | November 20, 2012 at 3:00 PM

    Speak for yourself.

  22. Posted by Troy Aikman | November 20, 2012 at 3:44 PM

    Hi,

    I'm Troy Aikman

    Thanks,

    Troy Aikman

  23. Posted by Guest | November 20, 2012 at 3:44 PM

    The Troy Aikman?

  24. Posted by Troy Aikman | November 20, 2012 at 3:45 PM

    That's right, Troy Aikman.

  25. Posted by Guest | November 20, 2012 at 3:49 PM

    Here on Dealbreaker?

  26. Posted by Troy Aikman | November 20, 2012 at 3:50 PM

    That's right, Troy Aikman

  27. Posted by very funny guy | November 20, 2012 at 3:53 PM

    get to rehab ASAP

  28. Posted by Guest | November 20, 2012 at 4:14 PM

    Any ideas on who the person is in the group that is a reporter/editor at a financial blog?
    http://online.wsj.com/article/SB10001424127887323

    "According to the SEC complaint, at least seven people, whom the agency didn't identify, allegedly received confidential information during the scheme. Other alleged members of the conspiracy described in the criminal complaint but not charged on Monday included a reporter/editor at a financial news website; a member of a New York hedge fund's risk assessment department and a government contractor who lived in Virginia."

  29. Posted by Captain Obvious | November 21, 2012 at 2:36 PM

    The binder.

  30. Posted by Towing Markham | April 11, 2014 at 1:56 PM

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