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US: Three Restaurant Executives Will Admit Fraud Charges

by Floyd NorrisThe New York Times
June 8th, 2006

Three former top officers of Buca Inc., an operator of Italian restaurants, have agreed to plead guilty to federal fraud charges in connection with a scheme to create false profits for Buca and allow executives to steal hundreds of thousands of dollars to pay for a wide range of expenses including the use of an Italian villa and visits to strip clubs.

Lawyers for the company's former chairman and chief executive, Joseph P. Micatrotto; its former chief financial officer, Greg A. Gadel; and a former controller, John J. Motschenbacher, said yesterday that their clients would plead guilty to the charges.

Three other men faced criminal charges in state court that were also filed yesterday, as were civil complaints by the Securities and Exchange Commission against three of the men.

The S.E.C. said Mr. Micatrotto obtained $849,100 in undisclosed compensation from 2000 to 2003, including payment for such things as a groom's dinner at his son's wedding; remodeling of his homes in California, Nevada and Minnesota; and for the cost of an Italian villa that was put in his name rather than the company's. He had previously transferred the villa to the company.

Buca, based in Minneapolis, operates Buca di Beppo, a national chain, and Vinny T's of Boston, which is concentrated in the Northeast. It went public in 1999 in a hot initial offering that rose 50 percent on the first day of trading after the shares were offered at $12 each. Buca stock reached a peak of $26.53 in 2001. Yesterday, it closed at $5.28 on Nasdaq, up 7 cents..

The company has restated its financial results and is now run by new management. A lawyer for Buca, Christopher T. Shaheen, said it was in negotiations with the S.E.C. staff regarding what action, if any, would be taken against the company.

For several years, the S.E.C. and federal charges said, Buca's top financial officers regularly arranged to treat some expenses as capital expenditures and ensure that profits met the targets the company had disclosed to analysts.

"Buca's top officers created a tone at the top and a corporate culture that allowed them to loot the company and engage in a financial fraud," said Linda C. Thomsen, the commission's enforcement director. "Such conduct is a fundamental violation of the trust placed in corporate officers by public shareholders and cannot be countenanced."

The lawyer for Mr. Micatrotto, Kenneth J. Walsh of McDonald Hopkins, said no agreement had been reached on sentencing, but he understood that guidelines would call for a prison term of about 15 months.

Mr. Micatrotto also settled an S.E.C. civil suit, agreeing to pay $565,000 and to be barred from serving as an officer or director of a public company.

Mr. Gadel, the former chief financial officer, has not settled the S.E.C. accusations, but his lawyer said he would plead guilty to federal charges of mail and wire fraud. The lawyer, Douglas R. Peterson of Leonard, Street & Deinard, said Mr. Gadel "is working to make amends, including repayment to Buca and treatment for his alcoholism."

A former Buca controller, Daniel J. Skrypek, was charged with theft by the Hennepin county attorney's office, which said he had admitted arranging for the company to pay charges run up by him and Mr. Gadel at strip clubs in Minneapolis, Boston and Puerto Vallarta, Mexico.

The largest such payment was a $23,000 charge, including a $5,000 tip, incurred when the two men spent five to seven hours at Centerfolds/Cafe Anzio in Boston. Mr. Skrypek also has not settled a civil suit brought by the S.E.C. His lawyer, Kevin Short, said Mr. Skrypek "deeply regrets" his actions and looks forward to putting the matter behind him. But he declined to say whether his client would plead guilty.

Mr. Motschenbacher was charged with wire fraud by the federal prosecutor in Minneapolis for obtaining illegal gratuities from Buca suppliers, who then paid for them through inflated billings. Among the gratuities were two all-terrain vehicles — the second provided after the first was wrecked — and the use of a sport utility vehicle.

The two other defendants in state court, Jeffrey S. Gullickson and Adam B. Lurie, are former employees of a supplier. They were charged with commercial bribery for arranging the payments to Mr. Motschenbacher. A lawyer for Mr. Gullickson said he expected his client to plead guilty. A lawyer for Mr. Lurie did not return telephone calls.



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