Former Duane Reade Inc. Chief Executive Officer Anthony Cuti was sentenced to three years in prison for falsely inflating income and misleading investors.
Cuti, 65, of Saddle River, New Jersey, was convicted in June 2010 of conspiracy and securities fraud after a federal jury trial in Manhattan. U.S. District Judge Deborah Batts also ordered Cuti today to pay a $5 million fine.
Batts called Cuti “a gifted, arrogant, driven, entitled individual” who “bullied people into committing fraudulent acts to make the company look better than it actually was” to increase his pay.
Batts said Cuti was also guilty of “the height of hubris” for re-writing his employee compensation plan that would allow him to double his compensation even if he was fired for cause, which later occurred, she said.
Cuti didn’t admit any wrongdoing when he spoke in court before the sentence was imposed. “I’ve always led my life with integrity,” Cuti said as his wife, adult daughter and brother sat in the courtroom. “It’s confusing, if not incomprehensible.”
“Some apologies have to go out,” he added.
‘A Good Run’
“I always thought I acted for the shareholders first and foremost,” he said. “I’d like to say I’ve had a good career. It was a good run. The conviction is so at odds with what I’ve tried to be.”
Cuti’s lawyer, Reid Weingarten, today asked Batts to impose no jail time and allow his client to remain free to perform public service. “It will be devastating if he’s sent away,” he said.
“He was not a guy motivated by greed and driven to line his pockets,” said Weingarten. Investors weren’t harmed, he argued, saying they’d profited from Cuti’s transformation of Duane Reade from “a sleepy nearly-bankrupt drug store on a Manhattan street corner to being a force to be reckoned with.”
Former Duane Reade Chief Financial Officer William Tennant, who was tried with Cuti and convicted of one count of securities fraud, is scheduled to be sentenced Aug. 29. The U.S. said both men engaged in a scheme to falsely increase revenue and lower expenses from 2000 to 2005.
U.S. Probation Department officials calculated that Cuti had faced a term from 17 1/2 years to as long as 21 years and eight months in prison. The agency recommended an unspecified lesser prison term be imposed, court records show.
“The offenses here were very serious, they went on for four and a half years and involved continuous, almost daily conduct by the defendant to inflate earnings of the company,” Assistant U.S. Attorney Jonathan Streeter said today. “It was ongoing, it was continuous, it was deliberate and it was calculated.”
Batts directed Cuti to surrender to U.S. Bureau of Prisons officials on Jan. 31. She denied a bid by Weingarten to allow him to remain free on bond pending his appeal.
Duane Reade, founded in 1960, was named after the two Lower Manhattan streets where it was located. Bain Capital LLC bought the chain from brothers Abraham, Eli and Jack Cohen in 1992 and sold shares to the public in 1998. Oak Hill Capital Partners LP bought all the publicly traded shares in July 2004.
Walgreen Co., the biggest U.S. drugstore chain, agreed to buy Duane Reade Holdings from affiliates of Oak Hill for $618 million in February 2010.
Cuti received more than $50 million from Duane Reade and Oak Hill from 2000 through 2005, including $25 million from the 2004 acquisition by Oak Hill, prosecutors said. Cuti left the company in 2005.
The case is U.S. v. Cuti, 08-cr-00972, U.S. District Court, Southern District of New York (Manhattan).