The Real Deal New York

Duane Reade execs’ trial reveals underbelly of retail brokerage

April 16, 2010 06:26PM
By Adam Pincus

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The defense in the federal trial of two former Duane Reade executives is painting a murky picture of two of the city’s leading retail brokers as the trial entered its second week.  

The brokers, who are not charged in the case, acted on a few deals with Duane Reade as both landlord and broker. In addition, the trial has painted a picture of a retail leasing environment in which landlords in a few instances paid brokers in cash to avoid taxes, including one instance of a suitcase filled with cash, though such cash dealings didn’t occur in connection with the Duane Reade deals.  

Defense attorney Reid Weingarten, representing one of the two Duane Reade executives accused of orchestrating sham real estate deals with affiliates of Winick Realty Group, said that while the deals were not bogus arrangements, they were pieces in a cloudy and interconnected world where payments flew back and forth between limited liability companies. 

While there is nothing illegal about a property owner acting as broker on his own property, the situation could allow the individual to alter a commission payment based on other financial circumstances. How such commission and other payments are made are central to the allegations against the Duane Reade executives.  

Although a majority of the real estate deals upon which the case is based involve Winick Realty Group, prosecutors did not charge the firm, CEO Jeff Winick or its former president, Cory Zelnik, with any wrongdoing. Prosecutors identified Winick as an unindicted co-conspirator, and Zelnik cut an immunity deal with prosecutors in exchange for his testimony. Winick and Zelnik have declined to comment for articles about the trial. 

In the trial at the Daniel Patrick Moynihan U.S. Courthouse in Lower Manhattan, federal prosecutors alleged that former Duane Reade executives Anthony Cuti, who was CEO, and William Tennant, who was CFO, conspired to exaggerate earnings to boost stock value, which in turn would increase the value of their own shares in the company. To do this, prosecutors said the executives used sham real estate transactions between 2000 and 2005 to pad the bottom line in public filings. They are both charged with multiple counts including securities fraud. 

Winick and Zelnik as property owners 

Weingarten also told the court such complex deals were not each isolated, but were in fact part of a wide-ranging relationship Winick and Zelnik had with Duane Reade in which they acted not just as brokers, but at times also as landlords to the drugstore.  

There is no allegation that the broker-owner relationship was improper, but only that it indicated that the normally clear-cut relationships between landlord, broker and tenant did not exist, and hence the normally clear-cut payments might be altered. 

Zelnik, who left Winick Realty in 2006 to start his own firm, said that from time to time Duane Reade leased space in properties in which he and Winick held ownership interests. He currently has an interest in just one property with a Duane Reade lease, a Brooklyn building at 296-300 Flatbush Avenue, he said. 

Weingarten also noted additional ties Winick Realty had to landlords who leased to Duane Reade. Real estate investors Stanley Chera and Lloyd Goldman, who together paid $1 million in 2002 to be 50 percent partners in Winick Realty, also owned real estate where Duane Reade was a tenant. Goldman and Chera are no longer partners in Winick Realty, court testimony shows. 

For example, when Duane Reade left one site at 464 Fulton Street in Downtown Brooklyn, owned by an affiliate of Lloyd Goldman, it moved down the street to 522 Fulton Street, to a building net leased by Stanley Chera. 

It would be fair to say that at different times “you wore different hats?” Weingarten asked. He continued, “At times you were a broker?” 

“Yes,” Zelnik said. 

“At times a consultant?” 

“Yes.” 

“At times a landlord?” 

“Yes.” 

Cash deals  

Weingarten also sought to undercut Zelnik’s credibility and expose the underbelly of Winick Realty and the industry.  

Weingarten pressed Zelnik to admit that when he testified in an unrelated court case in 2003 he gave incorrect information about how often a landlord pays commissions. 

Zelnik further admitted that he and Winick accepted a total of $100,000 in cash in a briefcase from a landlord in an illegal move to avoid paying income taxes. The landlord paid the cash in exchange for a reduced commission fee, in 1999 or 2000. That deal was not a part of the Duane Reade case, testimony shows. 

Zelnik received $25,000 from that transaction, and said in several additional instances he took a combined $5,000 in cash payments. He first admitted to the payments in interviews with federal investigators in 2008. 

Weingarten asked if, “there were other offers from other landlords and tenants to pay cash for a discount?” 

“It had come up, but it did not happen very often,” Zelnik said. He added there were no cash dealings with the Duane Reade account. 

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