SEC Files Fraud Charges Against Former Restaurant Executives for Undisclosed Compensation and Accounting Fraud; Former CEO Agrees to Pay $500,000 Civil Penalty
FOR IMMEDIATE RELEASE
Washington, D.C., June 7, 2006 - The Securities and Exchange Commission announced today the filing of securities fraud charges against three former top officers of an operator of national restaurant chains in connection with their receipt of approximately one million dollars in undisclosed compensation, participation in undisclosed related party transactions, and financial statement fraud from 2000 to 2004. The SEC charges were filed against Buca, Inc.'s former CEO, Joseph Micatrotto, the company's former CFO, Greg Gadel, and its former Controller, Daniel J. Skrypek.
Buca is a Minneapolis, Minn., company that operates the Buca di Beppo and Vinny T's of Boston national restaurant chains.
"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," stated Linda Thomsen, the SEC's Director of Enforcement. "Such conduct is a fundamental violation of the trust placed in corporate officers by public shareholders and cannot be countenanced."
"The fraud that pervaded the executive suite at Buca existed because the company's top officers showed scant regard for sound corporate governance," said Merri Jo Gillette, Director of the Commission's Midwest Regional Office. "The sanctions obtained against Buca's former CEO, Mr. Micatrotto, demonstrate that the Commission will deal with such conduct in the strongest terms."
Micatrotto has agreed to settle the Commission's action, filed in the United States District Court for the District of Minnesota, by consenting to a permanent injunction, disgorgement of $65,000 plus prejudgment interest, a civil penalty of $500,000 and a bar from serving as an officer or director of a public company. In setting the disgorgement amount, the Commission took into account Micatrotto's previous payments to Buca in connection with his undisclosed compensation and his transfer of title of an Italian villa to Buca.
The Commission's complaint alleges that, from 2000 to 2003, Micatrotto obtained undisclosed compensation in the amount of $849,100 by improperly billing Buca for a wide variety of personal and non-business expenses. In a separate action, filed against Buca's former CFO, Greg A. Gadel, and former Controller, Daniel J. Skrypek, the Commission alleges that Gadel and Skrypek approved many of Micatrotto's inappropriate reimbursement requests.
The complaint against Micatrotto alleges that Buca "reimbursed" the former CEO for, among other things, $131,000 in cash withdrawals from ATMs; a total of $127,000 for the same 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. However, since these payments were not made to reimburse legitimate business expenses, they constituted additional compensation to Micatrotto and should have been reflected as such on Buca's books. They were not. 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 Micatrotto engaged in two undisclosed related-party transactions. First, in 2001 Micatrotto used Buca funds to purchase an Italian villa in the name of himself and his wife, and then arranged for Buca to pay for certain improvements to the villa. Second, in June 2003 Micatrotto personally received $65,000 from one of Buca's vendors. The complaint charges Micatrotto with violating, and aiding and abetting violations of, the antifraud, proxy, reporting, internal controls and books and records provisions of the federal securities laws.
In its separate action against Buca's former CFO, Gadel, and former Controller, Skrypek, the Commission alleges that Gadel, from 2000 to 2003, received approximately $96,630 in undisclosed compensation, including reimbursements that he obtained from Buca for family vacations and visits to strip clubs. The complaint further alleges that Gadel knew of a series of undisclosed related party transactions totaling more than $1 million between Buca and an information technology company of which Gadel was a director and shareholder. Finally, the Commission's complaint alleges that Gadel and Skrypek directed a financial fraud in which Buca inflated its income by nearly $12 million from 2000 to 2004 through the improper capitalization of numerous expenses. The financial fraud caused Buca to overstate its annual income in amounts ranging from 18.8% to 36.9%. The Commission's complaint was filed in the United States District Court for the District of Minnesota and alleges that Gadel and Skrypek violated, and aided and abetted violations of, the antifraud, proxy, reporting, internal controls and books and records provisions of the federal securities laws. This matter is unsettled and the Commission is seeking permanent injunctions, disgorgement, civil penalties and officer and director bars.
The SEC's Midwest Regional Office and the United States Attorney's Office for the District of Minnesota conducted parallel investigations of this matter and, simultaneous with the Commission's announcement of the above actions, the United States Attorney's Office announced the filing of mail and wire fraud charges against Micatrotto and Gadel.
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For further information contact:
Merri Jo Gillette, Director, Midwest Regional Office: (312) 353-9338
Timothy L. Warren, Associate Director, Midwest Regional Office: (312) 353-7394
John J. Sikora, Jr., Assistant Director, Midwest Regional Office: (312) 353-7418
Additional materials: Litigation Release No. 19719; Litigation Release No. 19720