August 22, 2011
Former drug chain CEO gets 3-year (way-below-guideline) prison term
This Bloomberg news report, headlined "Ex-Duane Reade CEO Cuti Gets Three Years in Prison for Inflating Earnings," can be spun lots of different ways because the white-collar defendant received a significant, but way-below-guideline, prison term for corporate fraud. Here are the interesting details:
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.... “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....
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 feds can now surely crow a bit about having "crime in the suites" result in serious prison time here, as they do in this press release. And yet, in light of the apparently severe guideline calculation, Cuti and his counsel have to be somewhat thankful he is looking at only about 31 months in club fed after time off for good behavior.
August 22, 2011 at 10:18 PM | Permalink
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The guy made over $50 million in five years but was not, according to defense counsel, "driven to line his pockets"???
Gads, where do I sign up?
Posted by: Bill Otis | Aug 23, 2011 7:40:49 AM
Actually, this sentence is smack in the middle of the guidelines (Level 20, 33-41 mos.). The judge expressly found there was no reason to go outside the guidelines.
The reason it looks dramatically low (to practitioners in this area) is that we're all used to numbers that are hugely inflated by loss findings related to the value of the company's stock. (See, e.g., Bowman, Sentencing High-Loss Corporate Insider Frauds After Booker, 20 Fed. Sent. Rep. 167 (2008) (noting "multiplier" effect anytime market loss of a publicly traded stock is taken into account)).
In this case, after a lengthy evidentiary hearing, the judge found the government had not proven any loss. With no loss enhancement, this is the guideline sentence. (It includes a 4-level post-SOX enhancement for being the officer of a publicly traded company, and another 4-level enhancement for leadership role.)
Posted by: Def. Atty. | Aug 24, 2011 5:21:25 PM
The probation dept's much higher numbers, referenced in the article, were based on a loss claim that the court found was not supported by the evidence.
Posted by: Def. Atty. | Aug 24, 2011 5:27:42 PM