Judge questions executive’s proposed civil insider trading settlement

A federal judge declined to sign a proposed judgment that would end an executive's civil insider trading case, indicating instead that he has major questions about the fairness of the deal.

The order by U.S. District Judge David O. Carter late Friday ordered supplemental briefing to address why a $1.5 million fine is adequate "given the public interest" surrounding James Mazzo's case. He also wants to know how he'll retain jurisdiction should Mazzo violate the requirement that he never publicly deny the allegations.

The order could hinder a "global resolution" the U.S. attorney's office said it's pursuing in Mazzo's criminal case as his defense team at Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates contends with Carter, who is known for his long hours and unorthodox, hands-on approach.

"Judge Carter's very much into transparency and clarity," said criminal defense attorney Kate Corrigan of Corrigan Welbourn Stokke APLC, who appears before him frequently. "He likes to make sure that everybody is on the record and he has a very good understanding as to why it is they came up with that agreement."

Carter last saw Mazzo at a December 2015 status conference in which the judge said he believed the civil and criminal cases should be heard by the same judge, "but apparently, we haven't been able to work that out in our own bureaucracy," according to a court reporter's transcript.

The judge in the criminal case, U.S. District Judge Andrew J. Guilford, said last year that Carter "has some friendly disappointment with me" over the length of the criminal proceedings. Carter was waiting for the criminal case to end before he proceeded with the civil case.

A jury in May 2017 convicted Mazzo's co-defendants, David L. Parker and retired professional baseball player Doug DeCinces, but hung 8-4 in favor of convicting Mazzo. DeCinces agreed to testify against Mazzo, and prosecutors added four perjury charges for Mazzo's testimony in the first trial.

But the second jury hung 10-2 in favor of acquittal, with a 9-3 vote on one count, after Mazzo's lead lawyer, Skadden partner Richard Marmaro, argued DeCinces was lying to the jury to win a more lenient sentence by ensuring Mazzo was wrongfully convicted, too.

Assistant U.S. Attorney Stephen A. Cazares, who prosecuted the case with Assistant U.S. Attorney Jennifer L. Waier, likened Marmaro's argument to a "conspiracy theory."

Guilford rejected a post-trial motion for acquittal from Marmaro but also criticized prosecutors for "apparently ignoring two previous juries' conclusions about the merits of the case." A third trial is scheduled to begin Feb. 12 as Marmaro and prosecutors continue pursuing a "global resolution," according to a Sept. 27 stipulation. United States v. DeCinces, 12-CR00269 (C.D. Cal., filed Nov. 28, 2012).

The Securities and Exchange Commission announced Nov. 14 it had settled with Mazzo, who is accused of disclosing proprietary information to DeCinces about the pending sale of his company, Advanced Medical Optics, to Abbott Laboratories, in late 2008. DeCinces bought 71,700 shares of Advanced stock for about $5 a share then sold them for $1.3 million in profits shortly after the price soared to $22 per share following Abbott's January 2009 acquisition. About 20 of DeCinces' family and friends also made about $1.3 million.

DeCinces' former Baltimore Orioles teammate, Eddie Murray, was charged as a co-defendant in Mazzo's civil case, along with Parker. Parker's case still is pending, but Murray settled the day the action was filed in August 2012 with him agreeing to pay $358,151.

DeCinces was sued in a separate SEC civil action, which he settled in 2011 for $2.5 million. Securities and Exchange Commission v. Mazzo, 12-CV01327 (C.D. Cal., filed Aug. 17, 2012).

In Mazzo's case, SEC attorneys Christopher R. Kelly and John B. Bulgozdy filed a notice of consent and proposed final judgment on Nov. 13 that calls for him to pay a $1.5 million fine. He would also be prohibited from acting as an officer or director of any issuer that has a class of securities governed by Section 12 of the Exchange Act.

Mazzo, the vice chairman of Chapman University's Board of Directors, currently is a global ophthalmology president at Germany-based Carl Zeiss Meditec AG, which does not qualify.

While Mazzo's insurance has funded Marmaro's white-collar defense team at Skadden, the judgment prohibits Mazzo from using it to pay the fine. And while it says Mazzo doesn't admit or deny the allegations, it specifies he's admitting the allegations "solely for purposes of exceptions to discharge set forth in Section 523 of the Bankruptcy Code, 11 U.S.C. §523."

The agreement also prohibits him from taking any action or permitting "any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis."

Carter's request for supplemental briefing orders Mazzo and the SEC to file by Nov. 26 a brief "concerning the reasonableness of the Consent Decree and Proposed Final Judgment," particularly the fine amount and how Carter can retain jurisdiction to enforce the requirement about never denying the allegations.

While public policy favors settlement, "[when] a consent decree impacts public interests, the court has a heightened responsibility if the interests at stake were not represented in the negotiating process," according to the order, which cites U.S. v. Chevron U.S.A., Inc., 380 F. Supp. 2d 1104, 1111 (N.D. Cal. 2005).

Marmaro declined comment on Monday.

Corrigan said Carter's order isn't surprising, particularly given the nature of the case, the amount of money involved and the uncertainty of two hung juries in the criminal case and the amount of money.

"Carter will always want to have a hearing and want to make sure that there's a record made on it," Corrigan said. "I think it's in fairness to the parties."