One of the city’s largest retail brokerage firms, Winick Realty Group, is a central element in a case set to go to trial tomorrow in which federal prosecutors accuse former executives of the drug store chain Duane Reade of deceiving investors through exaggerating millions of dollars of the company’s income, court records show.
Government prosecutors claim in an October 2008 indictment that Duane Reade executives Anthony Cuti and William Tennant orchestrated sham real estate transactions and other improprieties to pump up failing income statements.
Three companies affiliated with Jeff Winick, CEO of Winick Realty, are identified as being involved in 43 of 51 real estate deals the government alleges are not legitimate, court papers say.
While Winick was not identified in the indictment against Cuti and Tennant, court papers Cuti filed in January identify the brokerage Winick as the firm involved in the deals. Winick is not charged in the indictment and there are no allegations against Winick or his firm of wrongdoing. Jeff Winick said in an e-mail that he could not comment.
Cuti and Tennant are charged with conspiracy to commit securities fraud, false statements in annual and quarterly reports, false statements to auditors and false book and records entries. Cuti and Tennant could each face up to 20 years in prison if convicted of the most serious charges.
The trial against Cuti and Tennant is scheduled to begin tomorrow in Manhattan Federal Court with jury selection. One of the central allegations is that they structured bogus real estate transactions worth millions of dollars through an unnamed brokerage, as well as landlords and developers.
Opening statements are set to begin Wednesday with former Winick retail broker Cory Zelnik, the founder and CEO of Zelnik & Company, slated to be the first government witness, a legal source said.
The alleged scheme by Cuti, who was Duane Reade CEO and president until being fired in 2005 and Tennant, CFO UNTIL 1999 and then senior vice president until 2001 and later a consultant for the drug store, spanned December 2000 through June 2005, the indictment says.
In court papers, the government claims that brokers, developers and landlords paid Duane Reade millions of dollars for leasehold rights, for options to sign a lease at properties and for delivering a property late — known as real estate concessions — in instances in which no payment or a much smaller payment was actually due.
Duane Reade would book the dollars as income, and in some instances repay the third-party entities through additional bogus deals, making the entire exchange a so-called “round-trip” payment with no true economic benefit to the company, prosecutors said. One Duane Reade store tied to an allegedly bogus $550,000 transaction is 100 West 57th Street.
Cuti and Tennant pleaded not guilty and in court papers say the deals were legitimate transactions. Duane Reade has said it is cooperating with the investigation. A lawyer for Tennant said he was denying the charges. Duane Reade and Cuti’s attorney did not immediately respond to requests for comment.
In court papers filed by Cuti in January, he asked to subpoena Winick Realty and two other entities controlled by Jeff Winick to prove that 43 allegedly improper transactions involving Winick were in fact legitimate.
Duane Reade was purchased by private equity firm Oak Hill Capital Partners in July 2004. In February, the owner of the Chicago-based drugstore chain Walgreens announced it would buy Duane Reade, which has 257 stores in the metropolitan area, for just over $1 billion.
There is a civil case in federal court also brought in October 2008 by the Securities and Exchange Commission against Cuti and Tennant on similar charges.