Risk & Compliance

Expenses Land Execs in SEC Doghouse

Expenses from strip clubs and dog kennels were undisclosed compensation for former executives of restaurant chain Buca di Beppo, the SEC says.
Stephen TaubDecember 28, 2007

The Securities and Exchange Commission entered final judgments against two former finance executives whom it charged with a fraudulent scheme to hide expenses at a national restaurant chain.

Greg A. Gadel, the former CFO of Buca Inc., the parent of the Buca di Beppo restaurant chain, was barred him from serving as an officer or director of a public company. Daniel J. Skrypek, the company’s former controller, was ordered to pay a $50,000 civil penalty and was barred from serving as an officer or director of a public company for five years.

In June 2006, the SEC charged that Gadel and Skrypek were responsible for misstatements and omissions in Buca’s public filings that resulted in the understatement of compensation paid to Gadel and Joseph Micatrotto, the company’s former CEO, president, and chairman. The SEC also charged that the pair failed to disclose related party transactions. Gadel and Skrypek allegedly also 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 SEC also alleged that from 2000 to 2003, Gadel and Skrypek routinely approved Micatrotto’s requests for reimbursement of a wide variety of personal and nonbusiness expenses — including ATM cash withdrawals, duplicate airline tickets, family wedding expenses, dog kenneling, and home-remodeling costs — resulting in the undisclosed compensation to Micatrotto of $849,100.

The SEC also alleged that Gadel and Skrypek knew about and failed to disclose 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 allegedly also failed to disclose a related party transaction in which Micatrotto used Buca’s funds to purchase an 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. The SEC said the scheme caused Buca to overstate its annual income in amounts ranging from 18.8 percent to 36.9 percent.

Back in October, the SEC settled an array of related civil charges against Buca. Without admitting or denying the allegations, Buca consented to the entry of a final judgment permanently enjoining it from violating certain securities laws.

In June 2006, Micatrotto agreed to settle the SEC charges without admitting or denying them.