The Securities and Exchange Commission settled an array of civil charges against Buca, Inc. relating to alleged improper dealings involving its former CEO and CFO.
The Commission alleged that from 2000 through 2004, the parent of the Buca di Beppo restaurant chain materially understated the compensation of its top two officers, omitted significant related-party transactions involving them, and reported inflated income as the result of conducting an earnings management scheme.
Specifically, the SEC alleged that Buca failed to disclose in regulatory filings that Joseph Micatrotto, the company’s former CEO, president, and chairman, was improperly reimbursed for personal expenses totaling nearly $850,000, including ATM cash withdrawals, duplicate airline tickets, family wedding expenses, dog kenneling, and home remodeling costs.
Buca also allegedly 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 his and his wife’s names. Second, Micatrotto deposited into his personal bank account a payment of $65,000 from one of Buca’s vendors that was intended as a contribution toward one of Buca’s corporate conferences.
Without admitting or denying the allegations, Buca consented to the entry of a final judgment permanently enjoining it from violating certain securities laws.
Micatrotto agreed in June 2006 to settle the SEC charges without admitting or denying them. Under that deal, he too consented to a final judgment permanently enjoining him from violating certain securities laws. He also agreed to be barred from acting as an officer or director of a publicly traded company and to pay disgorgement of $65,000 plus prejudgment interest and a civil penalty of $500,000.
Also in June 2006, the SEC charged that Greg Gadel, Buca’s former CFO, and Daniel Skrypek, the former controller, caused various misstatements and omissions in Buca’s public filings. As a result of their conduct, Buca’s public filings understated the compensation paid to Gadel and Micatrotto and failed to disclose related party transactions, according to the SEC complaint.
Gadel and Skrypek also allegedly engaged in a financial statements fraud that resulted in the material overstatement of Buca’s income. According to the SEC, from 2000 to 2003 Gadel received about $96,630 in undisclosed compensation from Buca, including reimbursements for family vacations and visits to strip clubs. The complaint further alleged that from 2000 to 2003, Gadel and Skrypek routinely approved Micatrotto’s requests for reimbursement of a wide variety of personal and non-business expenses resulting in the undisclosed compensation to Micatrotto of $849,100.
The SEC additionally alleged 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. Gadel and Skrypek also failed to ensure disclosure of a related party transaction in which Micatrotto used Buca’s funds to purchase the Italian villa, the SEC claimed.
Finally, the Commission alleged that Gadel and Skrypek directed a scheme to meet Buca’s earnings targets by improperly inflating Buca’s income by nearly $12 million from 2000 to 2004 by improperly capitalizing numerous expenses. This scheme was said to have caused Buca to overstate its annual income in amounts ranging from 18.8 percent to 36.9 percent.