(Adds statements by Duane Reade and lawyer for Cuti)
By Grant McCool
NEW YORK Oct 9 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
"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
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.
(Editing by Gary Hill)