The Real Deal New York

Garage owner Gerald Brauser testifies in Duane Reade execs’ fraud trial

By Adam Pincus | May 03, 2010 02:03PM

Gerald Brauser testified about a deal at commercial space in 62 West 62nd Street (Building photo source: PropertyShark)

One of Manhattan’s major parking garage owners, Gerald Brauser, took the stand last week as a government witness in the ongoing federal trial of two former Duane Reade executives accused of using bogus real estate deals to pump up earnings.

Brauser told the court that he was an unwitting participant in three transactions in Manhattan and New Jersey that prosecutors said were used to fraudulently boost the earnings of the drugstore chain, a review of court transcripts from April 26 shows. He also told the jury that he had a long relationship with Winick Realty Group CEO Jeff Winick, and had lent him more than $1 million over the years.

Brauser, who leads the Brauser Group, is the second major real estate investor to testify at the trial. Jeff Sutton, of Wharton Properties, testified April 20. Brauser and Sutton are not accused of any wrongdoing and prosecutors said there were landlords who were not complicit in the schemes.

Former Duane Reade CEO Anthony Cuti and former CFO William Tennant are on trial in the federal courthouse in Lower Manhattan on charges of securities fraud. The government says they exaggerated earnings through bogus real estate deals and reduced expenses through sham vendor credits. Cuti and Tennant claim the transactions were legitimate. The trial is entering its fifth week.

The 82-year-old Brauser, who is also a developer of condominium projects such as 100 West 18th Street in Chelsea, said he was instructed by Duane Reade executives to make payments even though the purpose of the payments was not always clear. Brauser did not respond to a call for comment.

In one example, he said he made a $500,000 payment to Duane Reade for a late fee although he did not deliver the premises late. Prosecutors said the money was used to exaggerate company income.

In that case, according to Brauser’s testimony, he struck a deal in 2000 to lease to Duane Reade his property at 1 North Central Avenue in Hartsdale, N.J. As part of the deal, he agreed he would have the property ready before July 2001 or he would pay a fine. Brauser prepared the location and the drugstore moved there in March 2001, well before the deadline.

Yet later that month, he signed a document with Duane Reade saying that he had delivered the space late and would pay the drugstore a $500,000 fine. However, he did not have to provide the funds himself. The drug store deposited company stock into an account Brauser controlled, and he used those funds to pay the $500,000, he said.

Prosecutor Jonathan Streeter asked Brauser if he had failed to prepare the space on time.

“No,” Brauser said.

Then why did you sign this agreement if you were not late, Streeter asked.

“I just signed all the documents because the overall deal, the way I understood it, is [Duane Reade would] deposit the stock and the money goes out the way [Duane Reade] directed,” Brauser said.

Brauser testified about two other deals involving Duane Reade: a lease and build-out at a retail space at the condo 62 West 62nd Street at Broadway and a location the drugstore planned to vacate the three-story commercial building at 2465 Broadway between 91st and 92nd streets.

Later, Brauser provided additional details about his financial ties with Jeff Winick. Under cross examination by defense attorney William Silverman, Brauser said he had lent substantial sums to Winick, including $250,000 about a decade ago.

And then again, more recently, he told the court.

“It was a million dollars… That was about a year ago,” said Brauser, who did not explain what the loans were for.

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