Thursday, June 8, 2006
Three former executives of restaurant company Buca Inc. were indicted on fraud charges and two (along with another former officer) were sued by the SEC for their role in looting the company, including having cooperative vendors submit false invoices to cover up their purchases. The SEC filed complaints against Joseph Micatrotto, Buca's former CEO, Greg A. Gadel, its CFO, and Daniel Skrypek, the controller, alleging securities fraud in connection with the secret payments and false records. Micatrotto settled the civil complaint by agreeing to disgorgement of $65,000 and a civil penalty of $500,000 related to over $849,000 in illicit payments, as described in the SEC's Litigation Release (here):
The complaint charges that Micatrotto improperly sought and obtained reimbursement for, among other things, $131,000 in ATM withdrawals; $127,000 in airline tickets submitted for reimbursement multiple times; the entire bill for the groom's dinner at his son's wedding; and other personal expenses, including dog kenneling and the remodeling of his homes in California, Las Vegas and Minneapolis. The complaint further alleges that, since these payments were for personal expenses, not legitimate business expenses, they constituted additional compensation to Micatrotto that should have been reflected in Buca's proxy statements. According to the Commission's complaint, Buca's proxy statements failed to disclose any of these payments as additional compensation to Micatrotto. As a result, Buca's proxy statements for this time period understated Micatrotto's annual compensation by amounts ranging from 27% to 74%.
The Commission's complaint further alleges that Buca's public filings, which Micatrotto reviewed and approved, failed to disclose two related party transactions involving Micatrotto. First, Micatrotto sought reimbursement from Buca for his purchase and renovation of an Italian villa titled in Micatrotto's and his wife's names. Second, Micatrotto deposited into his personal bank account a payment of $65,000 from one of Buca's vendors, even though this payment was intended as a contribution towards one of Buca's corporate conferences.
The SEC complaint against Gadel and Skrypek alleges that, among other things, they "routinely approved Micatrotto's inappropriate requests for reimbursement of a wide variety of personal and non-business expenses resulting in undisclosed compensation to Micatrotto of $849,100. The complaint further alleges that Gadel and Skrypek knew about and failed to ensure disclosure of a series of related party transactions totaling more than $1 million between Buca and an information technology company of which Gadel was a director and shareholder." (Litigation Release here) Neither has settled the SEC action at this point.
Micatrotto was indicted on one count of wire fraud related to the $65,000 payment. Gadel was charged with one count each of mail and wire fraud related to his receipt of approximately $96,000 in undisclosed compensation from Buca, including reimbursements for family vacations and visits to strip clubs -- I assume those expenditures took place at different times, or at least I hope so. A third defendant charged in federal court is John Motschenbacher, another former Buca controller not charged by the SEC in a civil action, who was indicted on two counts of mail fraud for soliciting payments from two Buca vendors for cash and a Chevy Tahoe. A New York Times article (here) states that the three will plead guilty to the charges. Skrypek was charged with theft in state court related to benefits he received through Buca.
Even though executives are fond of speaking in terms of "my company" and "our business," in fact it is not "their" corporation at all. The money belongs to the shareholders, and using it for one's ATM withdrawals and strip club trips hardly meets the requirements for a fiduciary. A Minneapolis Star-Tribune story (here) discusses the criminal charges.