Former CEO of Orange County Medical Device Firm Indicted for Providing Inside Information to Former Professional Baseball Player
SANTA ANA, CA—A federal grand jury today indicted the former chief executive officer of an Orange County medical device and eye care company on insider trading charges.
James V. Mazzo, who was the CEO of the Santa Ana-based Advanced Medical Optics, Inc., which was traded on the New York Stock Exchange under the symbol EYE, was added to an indictment that had previously named former professional baseball player Douglas DeCinces and two of his associates.
The case, which was initially filed in 2012, alleges that Mazzo was the source of non-public information that DeCinces and his associates used to trade EYE stock in the midst of a takeover bid by Abbot Laboratories.
The 41-count superseding indictment filed this afternoon in United States District Court charges Mazzo with providing DeCinces with confidential information in advance of Abbott’s 2009 acquisition of Advanced Medical Optics. DeCinces and his associates allegedly used the non-public information to purchase shares of EYE, which increased from approximately $8 to $22 as a result of the acquisition.
The indictment further alleges that Mazzo previously provided DeCinces with inside information in relation to Advanced Medical Optics’ 2007 acquisition of an Irvine medical device company, IntraLase Corp. (NASDAQ: ILSE). DeCinces allegedly used this inside information to purchase IntraLase stock, and to tip a friend to purchase shares, ahead of the announcement that Advanced Medical Optics was purchasing the company. IntraLase stock rose approximately 10 percent after the announcement of the deal.
The superseding indictment names:
- James V. Mazzo, 57, of Laguna Beach, who was the CEO of Advanced Medical Optics from 2002 to 2009;
- Douglas V. DeCinces, 60, of Laguna Beach, who currently is the president and CEO of a real estate development firm in Irvine;
- David Parker, 60, of Provo, Utah, who was a friend and business partner of DeCinces; and
- Fred Scott Jackson, 65, of Newport Beach, a real estate attorney who was friends with DeCinces.
The superseding indictment alleges that, during a series of meetings in the fall and early winter of 2008, Mazzo obtained inside information about Abbott’s planned tender offer, specifically that Abbott was prepared to pay $21 to $23 per share of EYE stock, which at the time was trading around $8 per share. Mazzo – who the indictment describes as a close personal friend of DeCinces’ – allegedly disclosed inside information regarding the tender offer during a series of meetings and telephone calls with DeCinces in the weeks leading up to the public announcement of the tender offer. During this same time, the indictment alleges, DeCinces began buying up EYE shares. According to the indictment, in December 2008, DeCinces liquidated his diverse stock portfolio of investments at Merrill Lynch – suffering approximately $80,000 in losses – to obtain approximately $160,000 that he used to purchase EYE stock. The superseding indictment alleges that DeCinces ultimately purchased a total of 90,700 shares of EYE stock, which he sold soon after Abbott’s tender offer for the company was publicly announced, and realized approximately $1.3 million in profits.
The indictment also alleges that DeCinces provided inside information about the Abbott tender offer to five other individuals who also purchased EYE stock. DeCinces allegedly gave the tip to Parker and Jackson, in part, to make up for prior investment recommendations that had gone bad. After purchasing EYE shares and selling them following the acquisition, Parker allegedly realized illegal profits of $347,920 and Jackson allegedly obtained illegal profits totaling $140,259.
An indictment contains allegations that a defendant has committed crimes. Every defendant is presumed innocent until and unless proven guilty.
The four defendants indicted in this case will be summoned to appear for arraignments in United States District Court in Santa Ana.
The indictment charges Mazzo with 13 counts of insider trading, 13 counts of tender offer fraud and one count of securities fraud.
DeCinces is charged with 19 counts of insider trading, 19 counts of tender offer fraud, one count of securities fraud and one count of money laundering.
Parker and Jackson are each charged with three counts of insider trading, three counts of tender offer fraud, and one count of securities fraud. Parker additionally faces one count of money laundering and criminal forfeiture.
The securities fraud count carries a maximum statutory sentence of 25 years in federal prison. Each of the insider trading and tender offer fraud counts in the indictment carry a maximum statutory sentence of 20 years. The money laundering counts each carry a maximum penalty of 10 years.
This investigation in this case was conducted by the Federal Bureau of Investigation and IRS Criminal Investigation. The Securities and Exchange Commission provided assistance during the investigation.
The SEC has a pending civil lawsuit in relation to the EYE insider trading scheme (see: http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171483872). DeCinces settled the case without admitting or denying the allegations, agreeing to pay $2.5 million in fines and not contest the IRS’ seizure of what were alleged to be insider trading profits. Jackson, without admitting or denying the allegations in the lawsuit also settled with the SEC, returning his profits and paying a penalty. A trial for Mazzo and Parker is scheduled for August 2015 in United States District Court in Santa Ana.