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Former CEO Denies Insider Trading in Jury Trial

Eight months ago, a federal jury convicted former Orioles and Angels third baseman Doug DeCinces of insider trading, but deadlocked on whether former CEO James Mazzo fed him the information on which he traded. On Wednesday Mazzo went to trial again, and DeCinces is lined up to testify against him.

SANTA ANA, Calif. (CN) — Eight months ago, a federal jury convicted former Orioles and Angels third baseman Doug DeCinces of insider trading, but deadlocked on whether former CEO James Mazzo fed him the information on which he traded. On Wednesday Mazzo went to trial again, and DeCinces is lined up to testify against him.

Though he has repeatedly denied it, this time DeCinces will testify that Mazzo urged him to act on “a once-in-a-lifetime opportunity” to buy stock in Mazzo’s company, Advanced Medical Optics, in the days before Abbott Laboratories was to acquire it, a federal prosecutor told the new jury.

Assistant U.S. Attorney Stephen Cazares said in his opening statement that DeCinces made a profit of more than $1.1 million in January 2009 on Advanced Medical Optics stock. The family members and friends to whom he passed on Mazzo’s tips also gained about $1.1 million, Cazares said.

But Mazzo’s lead defense attorney Richard Marmaro, with Skadden, Arps, Slate, Meagher & Flom, told the jury in his opening statement that for eight years DeCinces has denied getting tips from the CEO. Marmaro said the 67-year-old ballplayer is implicating his old friend now to avoid going to federal prison.

“Mr. DeCinces only changed his story to get a deal from the prosecutors,” Marmaro said.

A jury in May 2017 convicted DeCinces of 14 counts of insider trading, and deadlocked on another 14. It also convicted one of his friends, David L. Parker, of three counts. But it deadlocked on all 26 counts against Mazzo.

This time around, Mazzo is charged with 16 counts of insider trading and four counts of perjury for denying the insider trading the first time around.

Prosecutors say DeCinces, who became a real estate developer after leaving baseball, was a neighbor and close friend of Mazzo in Laguna Beach, and helped him join a prestigious country club.

Advanced Medical Optics, which made laser eye surgery and other medical devices, was successful, but it hit hard times during the 2008 recession. Its share price fell from around $23 to as low as $2.88 at one point, Cazares said.

As CEO, Mazzo was working on refinancing the company’s debt. He also sought out a buyer, which he found in Abbott Labs.

As the deal was progressing in December 2008, Mazzo told DeCinces about it. “I want to tell you something, but you’ve got to keep it between ourselves,” he told his friend, according to Cazares.

Over the next few weeks, they met or spoke several times about the acquisition, the prosecutor said. Cazares listed their contacts for the jury and the stock purchases DeCinces made after each meeting.

After a Jan. 4, 2009 dinner at the country club, Cazares said, Mazzo “sidled up to” DeCinces in the parking lot and asked him, “Doug, do you have enough stock?”

DeCinces said he did, but Mazzo insisted: “This is a once-in-a-lifetime opportunity.” Then he told him directly: “Buy more stock,” Cazares said told the jury.

The next morning, Cazares said, DeCinces called his broker before the markets opened and bought $161,000 in Advanced Medical Optics shares.

When the Abbott deal was announced on Jan. 12, Advanced Medical Optics’ share price shot up from $8.85 to $21.50, giving the former third baseman and his friends profits of more than $2.2 million.

Within days, the New York Stock Exchange asked Advanced Medical about a number of suspicious trades, including those by DeCinces and his friends and family. Angered, Mazzo instructed DeCinces to say he bought the stock based on public information about the company’s plans to refinance its debt, Cazares said.

During his opening statement, defense attorney Marmaro insisted that his client never gave inside information to DeCinces. “It didn’t happen,” he said.

What did happen was that DeCinces followed the stock tips of another friend, an expert investor named Richard Pickup, Marmaro said.

He said that Pickup over several decades had built his initial $50,000 nest egg into $250 million through smart value investing. In the fall and winter of 2008, he bought 2.5 million Advanced Medical shares, making a profit of $8 million on the Abbott acquisition.

DeCinces bought many of the same stocks as Pickup, Marmaro said, including General Electric and Carl Karcher Enterprises, as well as Advanced Medical Optics.

Marmaro said DeCinces deduced something was happening at Advanced Medical from “reading” Mazzo’s behavior, including his skipping or arriving late at outings because he was working so hard over the holidays.

“The evidence will show that over the past eight years, Mr. DeCinces has stood by this explanation for his trading,” including on the witness stand during the first trial, the defense attorney said.

When DeCinces was convicted last year, he faced as much as five years in federal prison. “He was at a crossroads,” Marmaro said. “Then the prosecution reached out.”

Marmaro showed jurors several drafts of a cooperation agreement between prosecutors and DeCinces’ attorneys, in which his potential prison time dropped from five years to two years to perhaps none at all,  in exchange for “substantial cooperation” against Mazzo.

“James Mazzo did not become part of Mr. DeCinces’ narrative until the prosecutors offered him a deal,” Marmaro said.

He said Mazzo had no motive for and received no benefit from any alleged insider trading: that neither he nor his family nor any of his friends traded in Advanced Medical stock or profited from the Abbott deal.

“The evidence will show that Mr. Mazzo didn’t receive a penny” from tipping DeCinces, Marmaro said. “He didn’t deserve a penny because he didn’t tip Mr. DeCinces.”

Ultimately, he said, “This case is about the credibility of two men, Jim Mazzo and Doug DeCinces.”

The trial before U.S. District Judge Andrew J. Guilford is expected to last as long as six weeks. The first witness is to take the stand Thursday afternoon.

Categories / Criminal, Securities, Trials

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