For the second time in a year, the fate of Jim Mazzo is in the hands of a federal jury. Prosecutors are still alleging the founder and former chief executive of Advanced Medical Optics violated insider trading laws by telling his friend and Laguna Beach neighbor Doug DeCinces that his company was being bought by Abbott Laboratories.
DeCinces was convicted of 14 counts of insider trading in the spring 2017 trial. Judge Andrew Guilford declared a mistrial in the case against Mazzo when the jury failed to reach a decision.
In the retrial, prosecutors added four counts of perjury and a new witness: DeCinces.
“What you do have in this case is a first-hand witness,” Assistant U.S. Attorney Stephen Cazares told the jury in his rebuttal closing on Feb. 14.
DeCinces signed what’s commonly called a “cooperating agreement” with prosecutors. He told the jury on the first day of testimony that he received the information on the Abbott-AMO merger from Mazzo in several conversations, the last time at a dinner at Big Canyon Country Club in Newport Beach on Jan. 4, 2009.
That contradicts DeCinces’ maintenance of innocence all these years and the story his lawyer told the court in the first trial.
“Really unusual case for several reasons,” said former federal prosecutor Tom Umberg. “One reason is you have a witness whose testimony is contrary to the earlier trial and you’re asking a jury to believe the more recent testimony.”
Mazzo defense lawyer Richard Marmaro told the jury that the former Angels baseball star changed his testimony in hopes of a lighter sentence, and that “none of those conversations is corroborated.”
The retrial lasted 18 days. Jurors began deliberating on Feb. 14.
A number of lawyers expressed surprise that the case against Mazzo was refiled and said Mazzo’s lawyers likely met with the U.S. attorney for the Central District of California in hopes of avoiding a new trial.
Marmaro, who heads the white-collar defense practice for the Los Angeles office of Skadden, Arps, Slate, Meagher & Flom LLP, also defended Mazzo in the first trial.
“Very well-regarded lawyer,” Umberg said.
A surprise filing isn’t new to Mazzo. He was indicted a full two years after DeCinces and the others the first time.
Longtime Angels third baseman DeCinces was a third-runner up for MVP in 1982.
In 2009 he made $1.3 million trading AMO stock, jurors determined due to insider trading, buying in the months preceding the announcement and selling after the Abbott buyout of AMO at $22 per share—a substantial premium—was made public on Jan. 12, 2009.
DeCinces also told several friends to buy AMO. David Parker of Utah was convicted in the first trial, and he and DeCinces await sentencing. Others, like Hall of Famer and former DeCinces teammate Eddie Murray, settled with the Securities and Exchange Commission—Murray agreeing to pay over $350,000 without admitting wrongdoing. DeCinces also settled with the SEC, reportedly for $2.5 million.
Prosecutors and SEC officials say DeCinces passed the tip to seven people, including his son Tim, and that together they made about the same as the ex-ballplayer: $1.3 million. Mazzo made $0.
Rule 10b5, 14e3 and Fiduciary Duty
Prosecutors agree Mazzo made no money, but disclosing “material non-public information” is a violation of fiduciary duty and securities law.
The securities charges against Mazzo are tied to two SEC rules, 10b-5 and 14e-3 from the 1934 Securities Exchange Act. Simply, it’s an executive’s fiduciary duty not to share “material nonpublic information.” It works both ways. Don’t share the information. Don’t receive it.
Old and arcane, but rules known to anyone in the securities business or in the C-suite. One broker shared with me that when he has a client who’s a company officer, he tells them on day one: Tell me your trade. Nothing else.
At no time are insider trades or all trades more scrutinized than around a big event, such as a merger. Regulators look at the size of the trade, and if it’s the person’s pattern, another broker told the Business Journal. Prosecutors contend the DeCinces trades in the chart on this page—from Dec 15, 2008 to Jan. 5, 2009—didn’t conform to his normal pattern, that he must have had a sure thing.
They told jurors in summary that after that Big Canyon dinner, which DeCinces says occurred on Jan. 4, that Mazzo told his neighbor, “Buy more.”
Mazzo’s team mounted its defense on several fronts—that DeCinces had other friends and colleagues promoting AMO, including his stock broker and another Laguna neighbor, investor Dick Pickup, who’d been buying AMO shares for several years. It’s the story DeCinces told the court in the first trial.
Then there’s the other element of the retrial that Umberg, today a partner at Umberg, Zipser LLP in Irvine, finds “unusual.”
“You’ve got a retrial against the person who didn’t make any money in the ‘scheme.’”
Defense lawyers pounded on the fact that Mazzo made nothing on the “alleged scheme.”
Profit isn’t necessary to violate SEC rules. But Marmaro asked jurors to ponder “why in December 2008 would [Jim Mazzo] change the entire way he led his life?”
Mazzo, 60, is one of Orange County’s highest-profile executives over the past generation. He followed a 22-year ascent at Allergan in eye care by founding Santa Ana-based AMO, a manufacturer of devices for eye surgeries. He’s presently global president of ophthalmology at Carl Zeiss Meditec.
Mazzo is equally known for his civic activities: founder of the Gavin Herbert Eye Institute at the University of California-Irvine; a member of the board of trustees at Chapman University; and 2012 recipient of the Impact Award from United Cerebral Palsy of Orange County.
Defense lawyers called at least 10 character witnesses, including former Allergan Chief Executive David Pyott and longtime Chapman President Jim Doti. “He’s held in the highest esteem by everyone I know.” Doti testified.
Prosecutor Cazares called the defense witnesses “Jim Mazzo and his executive friends … a parade of CEOs and executives.”
Mazzo testified at this trial.
He faces 20 counts in all, four new perjury charges and 16 violations of those SEC rules, two distinct violations tied to the eight stock purchases by DeCinces. Each could carry a five-year prison term.
Guilford was judge in the first trial, and as a practicing attorney—before he was a judge—was best known as the co-counsel for the city of Anaheim in the “Los Angeles Angels of Anaheim trial.”
No one the Business Journal spoke with would guess how this jury will go, only that its decision will likely come down to the witness they most believe: the ballplayer or the businessman.