## Facts

- Advanced Medical Optics, Inc. (AMO) was a California-based, publicly traded medical-eye-products company.
- James V. Mazzo was AMO’s chairman and chief executive officer and learned in October 2008 that Abbott Laboratories planned to acquire AMO.
- The Abbott/AMO transaction was confidential, and Mazzo allegedly had a duty not to disclose the information.
- Mazzo and Doug DeCinces were longtime friends, lived in the same gated community, and belonged to the same country club.
- The SEC alleged Mazzo tipped DeCinces with material, nonpublic information about Abbott’s planned acquisition of AMO.
- DeCinces allegedly used the information to buy substantial amounts of AMO stock before the acquisition was publicly announced.
- DeCinces also allegedly passed the information to at least five others who traded, including Eddie Murray and David Parker, as well as three other traders (Joseph J. Donohue, Fred Scott Jackson, and Roger A. Wittenbach).
- After the public announcement, the alleged tippees sold AMO shares, realizing profits tied to the price increase.
- The SEC alleged unlawful profits exceeded $2.4 million from Mazzo’s alleged tipping chain; it also alleged that DeCinces and three earlier-charged tippees made more than $1.7 million, that Murray made about $235,314, and that Parker made about $348,000.
- In an earlier round of the matter, DeCinces and the three other traders agreed to pay more than $3.3 million to settle the SEC’s charges; in this litigation release, the SEC announced a second round of charges against Mazzo, Parker, and Murray.

## Issues

1. Whether Mazzo, as AMO’s CEO, violated Exchange Act § 10(b) and Rule 10b-5 by tipping material, nonpublic information about Abbott’s acquisition of AMO in breach of a duty of trust and confidence.
2. Whether Parker and Murray, as alleged tippees (or downstream tippees), violated § 10(b) and Rule 10b-5 by trading AMO securities based on tipped material, nonpublic information.
3. Whether trading on material, nonpublic information concerning Abbott’s tender offer for AMO violated Exchange Act § 14(e) and Rule 14e-3.
4. What civil remedies the SEC could seek in a federal enforcement action based on the alleged tipping and trading scheme.

## Decision

- The SEC filed a civil complaint in the U.S. District Court for the Central District of California against Mazzo, Parker, and Murray, alleging insider trading and tender-offer related violations.
- The SEC alleged that Mazzo was the source of the inside information that DeCinces and others used to trade ahead of Abbott’s acquisition of AMO and that the resulting unlawful profits from the tipping chain exceeded $2.4 million.
- Murray consented to settle the SEC’s charges without admitting or denying the allegations and agreed to pay $358,151.
- As of the litigation release, the SEC stated that the case continued against Mazzo and Parker.

## Legal Principles

- Under Exchange Act § 10(b) and Rule 10b-5, an insider may face civil liability for tipping when the insider discloses material, nonpublic information in breach of a duty of trust and confidence, and trading results from that disclosure.
- Tippees and downstream tippees may face liability when they trade while aware (or when the circumstances indicate they should have been aware) that the information was obtained through an improper disclosure by an insider.
- Exchange Act § 14(e) and Rule 14e-3 generally prohibit trading while in possession of material, nonpublic information relating to a tender offer when the trader knows or has reason to know the information came from the offeror, the target, or persons acting on their behalf.
- In SEC civil enforcement actions alleging insider trading, requested relief commonly includes permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil monetary penalties; settlements may resolve some defendants while claims proceed against others.

## Conclusion

In Litigation Release No. 22451, the SEC announced a civil action alleging that AMO CEO James Mazzo tipped confidential information about Abbott’s planned tender-offer acquisition of AMO to his friend Doug DeCinces, who allegedly traded and relayed the information to others including Eddie Murray and David Parker; Murray settled for $358,151, while the SEC’s case continued against Mazzo and Parker at the time of the release.


Securities and Exchange Commission v. Mazzo, SEC Litigation Release No. 22451 (2012)