Federal judge demands ‘complete transparency’ in insider trading settlement

SANTA ANA -- A federal judge said he wants "complete transparency" regarding the fate of a criminal insider trading case against an ophthalmology executive before he approves a separate Securities Exchange Commission judgment, pulling the U.S. attorney's office into a civil settlement that was negotiated without the input of federal prosecutors.

"Don't use my court on the civil side to give me meaningless jurisdiction or remedies that are undefined if you're plea bargaining the criminal side. And if you're dumping the criminal case, then be forthright," U.S. District Judge David O. Carter said during a status conference Tuesday.

Carter said neither he nor U.S. District Judge Andrew J. Guilford, who presided over James Mazzo's two criminal trials, know what's happening with the 20-count indictment criminal indictment, despite its longtime priority over the civil case.

Mazzo is accused of disclosing material information to former professional baseball player Doug DeCinces about the pending sale of his company, Advanced Medical Optics, in late 2008. DeCinces was convicted in the first trial in May 2017, but two juries hung on Mazzo's charges. United States v. DeCinces et al., 12-CR00269 (C.D. Cal., filed Nov. 28, 2012).

Criminal prosecutors have said they're pursuing a "global resolution," and the SEC and Mazzo's lawyer, Richard Marmaro at Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, negotiated a $1.5 million settlement with a JAMS mediator that they filed with Carter on Nov. 13. Securities and Exchange Commission v. Mazzo et al., 12-CV01327 (C.D. Cal., filed Aug. 17, 2012).

But the proposed judgment doesn't address the criminal case, and it includes what Carter said are "meaningless" restrictions on Mazzo's public statements that provide no enforcement jurisdiction. While Mazzo is to never admit or deny the SEC allegations, the requirement doesn't apply to the criminal case, and the SEC emphasized in a supplemental brief that it's the commission's duty to enforce the restriction by petitioning the court.

Carter wasn't persuaded.

"I quite frankly have never seen a consent decree like this," he said. He asked if the government was pursuing a "holistic deal that includes "jurisdiction or supervision of the defendant."

Still, Carter told Mazzo to "take your anxiety level down" because the settlement eventually will work out.

"But it's not going to work out without complete transparency," Carter said.

The judge asked what attorneys think he would do if the deal "is just a dump the case on the criminal side after you hope that my clerk signs off on some nebulous, nonsensical jurisdiction that nobody can interpret."

"You're not going to enter it, your honor," SEC attorney G. Jeffrey Boujoukos answered.

"Well, I don't know that, counsel. You said that, but why don't you have a seat," Carter said.

Carter began the 5 p.m. hearing by ordering Boujoukos and SEC attorney Christopher R. Kelly to find Assistant U.S. Attorney Jennifer L. Waier, who prosecuted the criminal case with Los Angeles-based Assistant U.S. Attorney Stephen A. Cazares.

"Your honor, we've waited 10 years for this day. We can wait a little while longer," Marmaro said.

But Waier wasn't available, so they returned to the courtroom approximately 45 minutes later with Daniel H. Ahn, an assistant U.S. attorney who's not involved in the case. Ahn sat with Kelly and Boujoukos to represent the U.S. attorney's office during the approximately 20-minute hearing. Carter scheduled another conference for Thursday at 4 p.m. and ordered Waier to attend.

Marmaro, joined by Skadden's Clifford M. Sloan and Kevin D. Lloyd, offered to provide Carter a letter from the U.S. attorney's office that states the prosecutors' plans for the criminal case. But the SEC attorneys said they hadn't seen the letter until moments before, and they asked that it be presented in a sidebar. Carter refused.

"Get Ms. Waier in here so you're not in a difficult position," he said.

John C. Hueston of Hueston Hennigan LLP, who is not involved in the case, said Carter's approach is unsurprising.

"The SEC and the U.S. attorney's office seek to and often must proceed on separate tracks, but they certainly are aware of parallel cases and they often seek to coordinate where to the extent legally possible," said Hueston, former chief of the Orange County branch of the U.S. attorney's office.

Hueston said has "no doubt" that Mazzo's attorneys are trying to coordinate settlement of the criminal and civil cases, "but they are attempting to do so without expressly relating the cases, which might further complicate proceedings in one case or the other."

Marmaro and the SEC negotiated the civil settlement Sept. 12 in Washington, D.C., with retired U.S. District Judge James Robertson, a neutral with JAMS, but the SEC isn't part of the criminal case discussions "because they're a separate entity."

"I'm sorry, it's the United States government. You've got two cases that have stretched the court's resources, tied Judge Guilford up and Judge Carter up, and this is a nebulous provision that's causing me tremendous concern," Carter said.