Ex-Duane Reade CEO charged with fraud

October 9, 2008 4:49:29 PM PDT
Duane Reade Inc.'s former chief executive and chief financial officer were indicted Thursday on charges of exaggerating the income of the metropolitan area's largest drug store chain by millions of dollars. Anthony Cuti, of Saddle River, N.J., and William Tennant, of Richmond, Va., were charged in U.S. District Court with securities fraud, making false entries in books and records and making false statements to the Securities and Exchange Commission and auditors.

The executives "are alleged to have deceived the investing public by providing false and misleading information about Duane Reade's financial condition while lining their own pockets with millions of dollars in compensation," Acting U.S. Attorney Lev L. Dassin said.

If convicted of the most serious charge, Cuti, 63, and Tennant, 61, could face up to 20 years in prison.

The charges stem from December 2000 through June 2005, when Cuti was the company's chief executive officer, chairman of the board and president. Tennant was chief financial officer and senior vice president.

In papers filed in Manhattan, prosecutors said the men exaggerated the company's performance to meet their own financial projections and securities analysts' expectations.

The SEC filed a separate complaint in federal court in Manhattan, saying the men schemed to overstate the chain's pretax income by a total of approximately $17.5 million between 2000 and 2004. The executives entered into fraudulent transactions to boost reported income and enable the company to meet earnings guidance, the commission said.

Prosecutors said the men reported inflated income from fraudulent real estate transactions and reduced company expenses through fictitious credits from vendors. Tennant also was the company's real estate administrator, the SEC said.

Lawyers for Cuti said in a statement that Duane Reade grew fivefold to become the city's top retail drug chain during the 10 years he headed the company.

"We vigorously deny the government's allegations against Mr. Cuti and remain confident of our position on the merits," the statement said. "We look forward to our day in court, where we expect Mr. Cuti to be fully vindicated."

The statement said the indictment covers disputed transactions that occurred years ago and did not affect stockholders, bondholders, the company itself or its private equity holder, Oak Hill Capital Partners, which bought the chain in 2004. The disputed transactions did not affect Cuti's compensation or Duane Reade's present or future financial results, the company's statement said.

John Kenney, a lawyer for Tennant, said he had not yet seen the court papers and could not comment.

Duane Reade said in a statement that it has cooperated fully with various governmental agencies investigating the company over the last 16 months.

"We are gratified that the government has concluded its investigation with no finding of any wrongdoing by the company or any of its current executives," the company said.

Tennant worked for Duane Reade until December 2001 and remained a consultant until April 2005; Cuti was terminated in November 2005, the company said.

The deputy director of the SEC's Division of Enforcement, Scott Friestad, said the "case demonstrates that pursuit of accounting fraud continues to be a priority of the commission, which will hold corporate officials accountable for misconduct."


Load Comments