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This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week, we're going to highlight an executive and a company that's been a long time coming to this weekly series: the former Chairman and CEO of Advanced Medical Optics, James Mazzo.
The dunce cap
If the name doesn't sound all that familiar, that's because it's now called Abbott Medical Optics as a result of Abbott Labs (NYSE: ABT ) purchasing the company at the height of the recession in early 2009. With many stocks falling hand-over-fist at that time, Advanced Medical definitely drew the attention of investors and Securities and Exchange Commission regulators when its stock tripled in just a matter of a few weeks, after news that Abbott would be buying the ophthalmic products provider for a 149% premium.
New charges filed this week by the SEC allege that Mazzo gave inside information about the upcoming merger to close friend and former baseball player Doug DeCinces (I can actually hear the wailing cries of Angels and Orioles fans everywhere). DeCinces, if you recall, already settled with the SEC last year after agreeing to pay $2.5 million in fines. As noted by the Los Angeles Times in 2011, DeCinces actually liquidated a portfolio containing around 110 stocks in order to raise enough cash to buy more of Advanced Medical Optics' stock.
According to the complaint filed by the SEC, the unlawful earnings from Mr. Mazzo's insider tip-off total $2.4 million.
To the corner, Mr. Mazzo and Major League Baseball...
This investigation implicated not only former third-baseman Doug DeCinces, but also one of baseball's all-time greats, "Steady Eddie" Murray. Murray neither admitted nor denied involvement in the ongoing investigation, but he did pay a $358,151 fine to settle the SEC's allegations that he made $235,314 in illegal profits from his purchase.
What I find both hysterical and sad at the same time is a quote from Murray's Hall of Fame page as noted by The Wall Street Journal which reads, "If I can help you, it helps us. It's about winning. If you can tell somebody something and it can help the team, that's what you do." D'oh! I wonder if Murray should ask the Hall if he can have that statement retracted...
Murray definitely isn't the first major leaguer to find himself in trouble -- and he likely won't be the last. Perhaps no former MLB player is more notorious for getting into trouble than Lenny Dysktra, who pled guilty to charges of bankruptcy fraud and money laundering earlier this year. But even then, there are plenty of other questionable judgment instances beyond just these two. This week I'm giving a separate wag of my finger at Major League Baseball.
On a somewhat more relevant note, when are insiders going to learn that tipping off friends and family members is a no-no? Just within the past month, we've witnessed allegations of insider trading brought against Nomura Holdings (NYSE: NMR ) for allegedly tipping off clients about potential share offerings in select companies, while JPMorgan Chase (NYSE: JPM ) and UBS (NYSE: UBS ) have had employees in Europe arrested on allegations that they front-ran buyouts in six companies between 2006 and 2008. A Chinese billionaire's firm has been also implicated in allegedly front-running CNOOC's (NYSE: CEO ) purchase of Nexen. And that's just in the last month!!!
Clearly, oversight isn't working, and penalties for insider trading aren't harsh enough. Although Mazzo has only been charged with insider trading and hasn't been found guilty as of this writing, given the circumstances surrounding the case, I still feel comfortable wagging my finger in disdain.
Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your suggestion in the spotlight.
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