The government and defense laid out their arguments in opening statements this morning in the trial of two former Duane Reade executives accused of pumping up share value including by creating allegedly bogus real estate transactions between the pharmacy and its primary broker Winick Realty Group.
Assistant United States Attorney Jonathan Streeter told the jury that the deals between Duane Reade and Winick and other landlords and developers including Jeff Sutton, president of Wharton Properties — were bogus.
“All this was done for Duane Reade to claim higher profits than they really had,” he said.
Former Duane Reade CEO Anthony Cuti and former CFO William Tennant are facing multiple charges including securities fraud, filing false quarterly and annual reports, and filing false books.
Sutton was not accused of any wrongdoing, and prosecutors said in fact some landlords were not complicit in the sham deals but instead paid Duane Reade to move into their properties. (Note: clarification added)
Following more than two hours of opening statements, former Winick president Cory Zelnik was sworn in this afternoon as the first witness in the case hinging on whether complex retail leasing transactions were fraudulent.
Zelnik agreed to testify under a grant of immunity from the prosecution, he told the jury, and provided a history of his involvement with Winick. The courtroom broke for lunch and he is expected to take the stand again this afternoon.
During opening statements, defense attorney Reid Weingarten said the deals structured with Winick were central to the trial.
“It comes down to whether Winick had a corrupt relationship with Duane Reade and [Cuti],” he said, assuring the jury he would prove the transactions were arms length and legitimate.
Streeter said the real estate schemes involved payments to Duane Reade to boost quarterly or annual reports, at times by as much as 30 percent, and then Winick would be paid back through allegedly bogus “return payments.”
“Zelnik and Winick were paid for services they did not render… for rights they did not have and for things they could not sell,” Streeter said.
Streeter claimed Winick engaged in the bogus deals with the drug store in part because it accounted for more than 50 percent of the brokerage’s revenues.
If Winick would not agree, the prosecutors said Cuti told Winick, “‘I will go elsewhere.’”
Cuti’s attorney Weingarten, said company CEO Jeff Winick was an important figure inside Duane Reade. He characterized Winick as operating as “Duane Reade’s in-house real estate department.”
But Weingarten also described Winick as a hard-working but flawed man of enormous appetites.
“He took business money to the gambling house,” Weingarten said. Once Duane Reade sent payments to Winick when he was facing a cash crunch, “to pull him back from the brink,” Weingarten said.
He said at one point, Winick was profiting handsomely on commissions from placing the drug store in new locations, but Duane Reade was stuck paying on so-called “dead rent” after vacating a location.
So Winick agreed it would be responsible for locations with “dead rent,” Weingarten said.
Tennant’s attorney, John Kenney, maintained his client’s innocence in a brief opening statement.