Duane Reade fraud trial based on Winick Realty deals expected to close today

New York /
Jun.June 07, 2010 11:00 AM

From left: Zelnik and Winick

The prosecution is scheduled to deliver its final statement this morning in the federal securities fraud case against two former Duane Reade executives who are accused of using bogus real estate deals through Winick Realty Group and others to inflate company earnings.

Assistant U.S. Attorney Jonathan Streeter is expected to deliver his rebuttal this morning, which is the last word in the trial and follows closing statements last week by the prosecution and defense.

The outcome of the nine-week trial in federal court in Lower Manhattan will hinge in large part on how the jury responds to the testimony of the prosecution’s star witness, former Winick Realty president Cory Zelnik, who was the first person to testify in the trial that opened in early April, closing statements indicated.

The government claims Anthony Cuti, former CEO for the drugstore chain, and William Tennant, former CFO, created bogus real estate deals to fraudulently inflate earnings in an effort to boost the stock price. Each faces counts of fraud and conspiracy to commit fraud, with the most serious charges carrying a prison term of up to 20 years. 

Neither Zelnik, now CEO of retail brokerage Zelnik & Company, nor Jeff Winick, CEO of Winick Realty, were accused of any wrongdoing in the case. However, entities affiliated with Winick Realty were party to nearly all of the more than 50 allegedly sham real estate transactions identified by prosecutors, making the men central to the case. 

Both the prosecutor and lead defense attorneys highlighted Zelnik’s testimony in their closing arguments last week, a review of court transcripts shows.  

“How do you know that the real estate deals were crafted, crafted solely for the purpose of pumping up income?” Assistant U.S. Attorney Rebecca Ricigliano asked the jury in her closing June 2. “Because Cory Zelnik told you so. He told you he and Jeff Winick had not an ounce of interest in doing those deals.” 

But defense attorney Reid Weingarten took Zelnik’s testimony and tried to turn it to the advantage of his client, former CEO Cuti, in part by seeking to undermine Zelnik’s credibility. 

Weingarten argued in his closing on June 2 that the complex web of deals between Duane Reade and Winick Realty and other entities was just part of “real work, real transactions and real money.”

Then he asked how the prosecution can use its star witness to support its case, when Zelnik, under cross examination from Weingarten in April, said he never thought he was engaging in wrongdoing in the deals with Duane Reade. 

“[The government] put[s] up one witness from Winick [Realty], Cory Zelnik, and there’s never a moment in time when he thought he was doing anything wrong. What is wrong with that picture?” Weingarten asked the jury. He reminded jurors, as well, that Zelnik told them under questioning that he filed a false tax return after accepting about $30,000 in cash payments about a decade ago.

Weingarten then took the prosecution to task for never calling Winick to the witness stand. 

“The failure to call Winick, I respectfully submit, produced a gaping hole in their case. It seemed like 1,000 times in this trial the obvious question is, Where’s Winick?” Weingarten said. 

Tennant’s attorney John Kenney, in his briefer closing remarks, said, “Mr. Tennant has denied there was any illegal or improper conduct.” 

The prosecution rested its case May 27 after eight weeks of testimony and the attorneys for the two defendants announced on June 2 that they, too, rested their cases.

 

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