Defense & Government Bash One Another in Insider Trading Trial

SANTA ANA, Calif. (CN) — The defense attorney for a Southern California CEO accused of insider trading told a federal jury Wednesday that the prosecution’s theory of the case makes no sense — and the prosecutor responded that the defense explanation is ridiculous.

James Mazzo, the former CEO of ophthalmological device company Advanced Medical Optics, is accused of telling retired Major League third baseman Doug DeCinces that Advanced Medical was about to be acquired for more than twice the market price of its shares. Armed with that tip, DeCinces and several of his friends scored combined profits of $2.6 million on Advanced Medical stock, prosecutors say.

Mazzo, 60, is a highly regarded executive and philanthropist in Orange County who serves on the board of Chapman University, among other positions. He founded Advanced Medical and led it until its sale to Abbott Laboratories in January 2009.

“Why would Jim Mazzo throw everything away to commit a crime, especially one that would draw immediate scrutiny?” his lead attorney Richard Marmaro, with Skadden, Arps, Slate, Meagher & Flom, asked the jury during his closing argument. “It makes no sense.”

This is the second time Mazzo has gone to trial on charges of giving advance information about the Abbott purchase to DeCinces, his friend and neighbor in Laguna Beach. In May last year, a different jury convicted DeCinces of receiving insider information and of passing it on to another friend.

But that jury deadlocked 8 to 4 on whether Mazzo was guilty of providing the tip, and U.S. District Judge Andrew J. Guilford declared a mistrial.

In Mazzo’s new trial, which began in January before Guilford, DeCinces testified against his former friend. He described in detail three conversations in which he said Mazzo told him about the Abbott deal, and a fourth in which Mazzo told him to keep the tips secret.

During about five hours of closing arguments Tuesday and Wednesday, Marmaro mocked prosecutors’ claim that Mazzo violated the law to tip DeCinces, yet did not get anything in return from DeCinces and did not tell any of his other friends or family members about the Abbott offer.

According to the prosecution, Marmaro argued, Mazzo abandoned his principles, his integrity and his family to indirectly make a gift of more than $1 million to one friend — “and not his closest friend.”

“Has anyone heard of such a gift? Does it make any sense?”

What really happened, he said, was that DeCinces bought Advanced Medical stock based on recommendations from another neighbor, Dick Pickup, a highly regarded stock picker known as the Warren Buffet of Orange County. Pickup made a profit of about $8 million on his Advanced Medical shares.

When DeCinces was convicted of 14 counts of insider trading, Marmaro said, he realized he faced five years in prison, so he struck a deal with the U.S. Attorney’s Office to blame Mazzo. To do the deal, he concocted a story about the four tip conversations, saying that each one occurred just before some of his larger stock purchases, Marmaro said.

He told the jury that only the two men were present for the alleged conversations. “The prosecution did not present a single witness or document supporting Mr. DeCinces’ story,” Marmaro said.

In his rebuttal argument Wednesday, Assistant U.S. Attorney Stephen Cazares mocked the defense story: that DeCinces was actually innocent of the crimes of which he was convicted, and so, rather than pursue his right to appeal, he concocted an elaborate story in hope of reducing his sentence.

“That’s what they’re asking you to believe. They’re saying Doug DeCinces is really an innocent man — and so is Jim Mazzo — but he’s telling you he did it to get a sentence reduction from five to two years,” Cazares said.

“The government submits that’s nonsense.”

Cazares and Marmaro both noted that DeCinces claims his earlier Advanced Medical purchases occurred before he learned of the Abbott acquisition, and were indeed made based on Pickup’s recommendation. However, the jury in the first trial convicted him of insider trading for some of those purchases.

He also was convicted of tipping a friend, David Parker, to the Abbott deal, and Parker was convicted of insider trading for acting on the tip. But on the stand, DeCinces testified that he never told any of his friends about Abbott. He said he urged them to buy Advanced Medical solely because Pickup was investing heavily in the stock.

Marmaro criticized DeCinces for not testifying earlier to save Parker or other friends who were investigated by the Securities and Exchange Commission.

In his rebuttal, Cazares said those claims of innocence actually buttress DeCinces’ testimony.

If DeCinces were a “bought witness” willing to say whatever he could to please prosecutors, “why did he tell you the government was wrong?” Cazares asked. “Because he was doing his best to tell you the truth, not making up some story.”

Further, if he were trying to give prosecutors a story they wanted to hear, he would not insist now that Parker was wrongly convicted.

“I’ll tell you, it doesn’t please the government,” Cazares said.

Ultimately, he concluded, the only explanation for DeCinces’ purchase of thousands of Advanced Medical shares in late 2008 and early January 2009 was “a tip from Jim Mazzo.”

The jury was excused to begin its deliberations mid-afternoon Wednesday.

DeCinces played third base for the Baltimore Orioles and California Angels from 1973 to 1987. He had a lifetime batting average of .259, with 237 home runs and 879 runs batted in. He made the American League All-Star team in 1983.

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