(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
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
Oak Hill sold Duane Reade in 2010 to Walgreen Co for
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
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,