Criminal and civil fraud charges were filed Wednesday against several former executives of Buca Inc., which operates 104 Italian restaurants in 28 states under the names Buca di Beppo and Vinny T’s.
The U.S. Attorney’s Office for the District of Minnesota handed up criminal charges against former chief executive officer Joseph Micatrotto with wire fraud for allegedly using $65,000 of Buca’s money to pay a debt from a failed restaurant he owned, according to the Associated Press. According to the complaint, Micatrotto reportedly arranged for vendor High Wire Networks to bill Buca for $65,000 of services it didn’t provide.
Federal prosecutors also charged former chief financial officer Greg Gadel with mail fraud and wire fraud and John Motschenbacher, who held a number of finance-related posts, with two counts of mail fraud.
In addition, the Securities and Exchange Commission filed securities fraud charges against Micatrotto, Gadel, and former controller Daniel Skrypek.
“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 Thomsen, the SEC’s director of enforcement, in a statement. “Such conduct is a fundamental violation of the trust placed in corporate officers by public shareholders and cannot be countenanced.”
The SEC alleged that from 2000 to 2003, Micatrotto obtained $849,100 of undisclosed compensation by improperly billing Buca for personal and non-business expenses. They included $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. The SEC alleged that Gadel and Skrypek approved many of Micatrotto’s inappropriate reimbursement requests.
Since these payments were not made to reimburse legitimate business expenses, continued the SEC, they should have been reflected as additional compensation on Buca’s books. Instead, asserted the regulator, Buca’s proxies understated Micatrotto’s annual compensation by amounts ranging from 27 percent to 74 percent.
Regarding Gadel, the commission asserted that from 2000 to 2003, he received about $96,630 in undisclosed compensation, including reimbursements obtained from Buca for family vacations and visits to strip clubs. The complaint also alleged that Gadel knew of a series of undisclosed related-party transactions, totaling more than $1 million, between Buca and a technology company of which Gadel was a director and shareholder.
In addition, the SEC alleged 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 fraud caused Buca to overstate its annual income by amounts ranging from 18.8 percent to 36.9 percent, according to the complaint.
Without admitting or denying the allegations, Micatrotto agreed to settle with the SEC 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.
SEC charges against Gadel and Skrypek have not yet been settled.