The Real Deal New York

Former Winick prez outlines alleged sham deals between Winick affiliate, Duane Reade

April 08, 2010 11:47AM
By Adam Pincus

alternate textFormer Winick Realty Group president Cory Zelnik says he paid for an expired lease at 1412 Broadway after moving Duane Reade to 1430 Broadway (building photos’ source: PropertyShark)

Former Winick Realty Group President Cory Zelnik testified yesterday as the first witness in the federal government’s securities fraud conspiracy trial of two former executives of the New York-based pharmacy Duane Reade.

Zelnik told the jury that he and his former partner Jeff Winick, CEO of Winick Realty, engaged in a series of allegedly bogus transactions with Duane Reade that had no economic value, starting in about 2000. Neither Zelnik, Winick nor his company are named in the indictment, and Winick is not facing any charges.

Zelnik agreed to testify on a grant of immunity from prosecution. Zelnik said he and Winick were partners in a real estate investment company called Danielle Equity Holding that in February 2001 paid Duane Reade a total of $806,000 for the right to control leases in eight properties valued at between $63,000 and $170,000 per lease although in fact the leases allegedly no longer had value.

Zelnik and Winick paid the money, he said, because they expected to get paid back and remain working with Duane Reade.

The $806,000 payment to Duane Reade, prosecutors claim, was made to boost its earnings and thereby its share price.   

The payment “was an arrangement we had that Jeff Winick and myself had made with Tony Cuti to help raise capital for Duane Reade that would allow Winick Realty Group to continue its responsibilities in terms of new stores for Duane Reade,” Zelnik said on the stand.   

Anthony Cuti, Duane Reade’s CEO until 2005 and William Tennant, who served as CFO until 1999 and senior vice president until 2001, are facing charges including conspiracy to commit securities fraud and making false statements in annual and quarterly reports. They face up to 20 years in prison if convicted of the most serious counts.   

The payments to Duane Reade by Winick and Zelnik were part of a series of alleged sham lease transactions, the government contends.
  

In court yesterday at 500 Pearl Street, federal prosecutor Jonathan Streeter led Zelnik through lease transactions including termination and surrender agreements, to show the jury that Danielle Equity paid for leases that he claimed no longer had economic value.

In one example, Duane Reade in October 2000 signed an agreement to leave 1412 Broadway in order to relocate to 1430 Broadway, Zelnik said. But in December 2000, Winick and Zelnik agreed to pay Duane Reade $170,000 for the lease, as part of the “arrangement” Zelnik said he and Winick had with Duane Reade to pay $806,000, although the lease was worthless.

To get the money back, prosecutors said, another company, called JB62 Corp., owned by developer and parking garage owner Gerald Brauser, was given $1.9 million in Duane Reade stock. From that he paid about $1.069 million for construction work on a separate property, and paid Danielle Equity $831,000 for consulting services that were never rendered, Zelnik said. The payment was simply to pay back the $806,000 that Danielle Equity had paid to Duane Reade, the government alleges.

Brauser is not accused of any wrongdoing, court records show.

Have a tip? E-mail Adam Pincus at ap@therealdeal.com.

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