Attorneys defend proposed judgment in SEC insider trading case

Attorneys trying to persuade a federal judge to approve a proposed judgment in a civil insider trading case say the settlement levies a substantial fine while ending a lengthy proceeding that has caused the accused ophthalmology executive "enormous and unimaginable" stress.

Two briefs filed Monday differentiate between the Securities Exchange Commission case against James Mazzo and the criminal case by emphasizing restrictions on Mazzo's public statements regarding the validity of the civil case don't apply to the criminal proceedings.

Mazzo is accused of giving retired professional baseball player Doug DeCinces proprietary information about the January 2009 acquisition of his company, Advanced Medical Optics, by Abbott Laboratories.

"Mr. Mazzo has testified at both of his criminal trials, at length, and has denied under oath ever providing material nonpublic information to Mr. DeCinces, or anyone else," Richard Marmaro of Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates wrote in a 14-page brief.

"No statement Mr. Mazzo makes regarding the criminal proceedings should provide the basis for the SEC to seek to vacate the Proposed Judgment," added Marmaro, who represents Mazzo with Skadden partner Matthew E. Sloan and associate Kevin D. Lloyd.

However, neither Marmaro's brief nor the SEC's 10-page brief addresses the fate of Mazzo's 20-count criminal indictment, which is scheduled for trial Feb. 12 but is also subject to a "global resolution" federal prosecutors say they're pursuing. Thom Mrozek, spokesman for the U.S. attorney's office, declined comment on Tuesday, as did Marmaro.

Mazzo's attorneys began negotiating with the SEC after Guilford on May 1 denied a motion for acquittal in the criminal case but said prosecutors were "apparently ignoring two previous juries' conclusions" by proceeding with a third trial.

The jury that convicted DeCinces voted 8-4 in favor of convicting Mazzo. The second jury voted 10-2 in favor of acquittal on 19 counts and 9-3 on a 20th count. United States v. DeCinces et al., 12-CR00269 (C.D. Cal., filed Nov. 28, 2012).

The proposed civil judgment, filed Nov. 13, followed a full-day mediation on Sept. 12 with JAMS neutral James Robertson, a retired federal judge in Washington, D.C. It calls for Mazzo to pay a $1.5 million fine, restricts his employment opportunities at publicly traded companies and prohibits him from publicly denying the allegations.

U.S. District Judge David O. Carter has been awaiting the resolution of the criminal case, which is before U.S. District Judge Andrew J. Guilford of Santa Ana, before he addresses the civil case.

In his Nov. 16 order for supplemental briefing, Carter asked attorneys to address why a $1.5 million fine is adequate "in light of the public interests at stake in this case" and how he will retain jurisdiction should Mazzo violate the restrictions on his public statements.

SEC attorney Christopher R. Kelly said in his brief Carter needs to consider only if the judgment "represents a reasonable factual and legal determination," citing United States v. Oregon, 913 F. 2d 576, 580 (9th Cir. Aug. 27, 1990).

He said the SEC is tasked with considering whether the judgment serves the public interest, "and its decision merits significant deference," citing U.S. v. Chevron U.S.A., Inc., 380 F. Supp. 2d 1104, 1111 (N.D. Cal. 2005).

Kelly said the $1.5 million fine is the largest penalty imposed among the five people charged by the SEC, including DeCinces, who paid a $1.19 million penalty and returned $1.23 million he made from the stock trades.

When negotiating Mazzo's fine, the SEC considered Mazzo's financial means -- he made about $7.5 million for an 18-month employment agreement with Abbott -- as well as the "significant alleged illegal profits" generated by DeCinces and his friends. They also considered mitigating factors "such as Mr. Mazzo's willingness to settle this action and his apparent lack of pecuniary gain."

Kelly also said the SEC, not Carter, is responsible for enforcing the restriction on Mazzo's public statements by petitioning the court.

"As a practical matter, however, the Commission has rarely sought such relief, and has no reason to believe that Mr. Mazzo will violate the no admit/no deny obligations he agreed to in the Consent," Kelly wrote.

Marmaro's brief said the penalty "is at a multiple significantly higher than the penalty multiple approved by courts in other recent SEC cases."

He also said the judgment is "fair, adequate and reasonable" in part because of the high likelihood Mazzo would prevail in a civil trial. Despite the SEC having a lower burden of proof, "at its core, this is a two-witness case, with diametrically opposed versions, and no middle ground."

"In the second criminal trial, the overwhelming vote for acquittal suggests that a majority of jurors determined that Mr. DeCinces was lying and Mr. Mazzo was telling the truth. Mr. Mazzo has every reason to believe that jurors would reach a similar conclusion in a civil trial," according to the defense brief.

Carter had not addressed the briefs or scheduled a hearing as of late Tuesday afternoon.