Former retail execs indicted for defrauding Oak Hill

Oak Hill Capital Partners bought US drug store chain Duane Reade in 2004 for $750m, a price allegedly based on inflated earnings numbers.

The former chief executive of Duane Reade Holdings, who allegedly provided false information to private equity firm Oak Hill Capital Partners during the $750 million acquisition of the company in 2004, was indicted on fraud charges Thursday.

Former chief executive Anthony Cuti, and former Duane Reade chief financial officer William Tennant, were also indicted on charges of falsely reducing reported company expenses and inflating income from December 2000 to June 2005.

Oak Hill fired Cuti 17 months after it puchased the drug store chain. The firm declined to comment.

Lev Dassin, the United States Attorney for the Southern District of New York, alleges that Cuti and Tennant, who left the company in 2001 but stayed on as an advisor until 2005, misrepresented Duane Reade’s financial performance to meet projections and the expectations of stock analysts.

They allegedly reported inflated income from fraudulent real estate transactions and a reduction of expenses through fictitious credits from vendors.

Dassin said as a result of the scheme, Cuti and Tennant caused Duane Reade to report income that was inflated by 10 percent to 15 percent between the last quarter of its fiscal year in 2000 and Oak Hill’s acquisition in July 2004.

Cuti also benefitted financially as a result of the alleged fraud. The attorney said Cuti received more than $50 million in pay from Duane Reade and Oak Hill, including a payment of more than $25 million in connection with Oak Hill’s acquisition of Duane Reade.