NEW YORK (Reuters) – Two former top executives of the Duane Reade Holdings Inc drug chain were indicted on Thursday on charges of falsely reducing reported company expenses and inflating income, officials said.
The office of the U.S. Attorney for the Southern District said in a statement that former Chief Executive Officer Anthony Cuti also provided false information during negotiations over the purchase of previously public Duane Reade by private equity firm Oak Hill Capital Partners in 2004.
It said from December 2000 through June 2005, Cuti, 63, and former Chief Financial Officer William Tennant, 61, “engaged in a scheme to misrepresent Duane Reade’s financial performance” to investors and fraudulently made millions of dollars.
The SEC filed separate civil charges accusing the pair of multimillion-dollar accounting schemes when they were in charge of the biggest chain of drug stores in the New York City area.
But Cuti’s attorney in the civil case, Jeffrey Sklaroff, said in a statement that the transactions were disputed and had no effect on stockholders, bondholders, the company or Oak Hill.
“It is important to note that these old transactions were questioned only after Mr Cuti filed a claim against Duane Reade seeking to recover his sizeable investment in the company,” he said. “We vigorously deny the government’s allegations.”
An attorney for Tennant could not be reached for comment.
Deputy U.S. Attorney Lev Dassin said in a statement that the two men “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.”
The men “achieved significant financial gain” according to federal prosecutors. They said Cuti also received more than $50 million in compensation from Duane Reade and Oak Hill, including a payout of more than $25 million after the takeover.
Duane Reade chairman and CEO John Lederer said in a statement that the company had cooperated with the investigations. He said an internal probe led to the restating of financial results for the period.
“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,” Lederer said.
The SEC complaint said the inflated earnings involved two kinds of fraudulent transactions called Real Estate Concession and Credit and Rebilling. They caused Duane Reade to overstate its pre-tax income by a total of about $17.5 million, it said.
The SEC accused Cuti of making false statements and omissions in writing and in conversations with independent auditors as to the true nature of the transactions.
By Grant McCool
(Editing by Gary Hill)