(In 13th paragraph, corrects spelling of last name for lawyer to Brian Brook)
By Nate Raymond
NEW YORK, June 26 Two former executives at Duane Reade Inc on Wednesday lost a bid to have a U.S. appeals court reverse their 2010 securities fraud convictions for inflating earnings at the New York drugstore chain.
The 2nd U.S. Circuit Court of Appeals in New York affirmed the convictions and the sentences of Anthony Cuti, Duane Reade's former chief executive, and William Tennant, former chief financial officer.
In June, 2010, a federal jury in Manhattan found Cuti and Tennant guilty of engaging in a scheme to inflate Duane Reade's earnings from 2000 to 2004.
Prosecutors said the scheme resulted in misleading information being provided to shareholders and private equity firm Oak Hill Capital Partners, which bought Duane Reade in 2004.
Oak Hill sold Duane Reade in 2010 to Walgreen Co for $614 million.
Cuti was found guilty of conspiracy to commit securities fraud, securities fraud and making false statements to the U.S. Securities and Exchange Commission, among other things. He was sentenced in August 2011 to three years in prison and fined $5 million.
Tennant, who was convicted of securities fraud, was sentenced to time served and fined $10,000.
On appeal, Cuti argued that U.S. District Judge Deborah Batts should not have allowed two witnesses he claimed were not experts to offer expert testimony.
The lead partner from auditor PricewaterhouseCoopers and John Henry, Tennant's successor as Duane Reade CFO, answered hypothetical questions about how they would have accounted for various fraudulent real estate sales.
U.S. Circuit Judge John Walker, writing for a three-judge panel, said the questions were permissible because they were limited to established facts.
"These limitations left little room for the witnesses to engage in speculation," Walker wrote.
The appeals court also rejected Tennant's contention that prosecutors did not present enough evidence to show he knew a fraud was taking place. It issued a separate order dispensing with other arguments by the defendants.
Brian Brook, a lawyer for Cuti, said he was "surprised and disappointed" by the decision, he still believes Cuti "was denied a fair trial" and will be considering options.
John Kenney, a lawyer for Tennant, said he was disappointed in the ruling and would consider a further appeal.
Cuti, who is currently in a half-way house, is separately appealing an order by Batts in May requiring him to pay $7.62 million in restitution to Duane Reade and Oak Hill.
The case is U.S. v. Cuti, 2nd U.S. Circuit Court of Appeals, No. 11-3756.