Lawsuits, ownership keep Buca pot boiling

Last week's criminal charges against several former executives of Buca doesn't end the litigation at the restaurant chain.

In spite of the expected guilty pleas and hundreds of thousands in restitution and fines from former CEO Joe Micatrotto, CFO Greg Gadel and others, a couple of lawsuits are pending.

One of them raises the appearance of a conflict of interest between a founder and director of publicly held Buca and a related company that hired Gadel after he left Buca late in 2004.

In early August, U.S. District Judge Donovan Frank will hear arguments surrounding a shareholder suit against Buca that alleges that Gadel and Micatrotto inflated financial results between 2000 and 2003, which resulted in higher-than-deserved bonuses to Micatrotto and allowed him to sell some stock at artificially high prices before he left the company in 2004.

Micatrotto settled claims of unauthorized reimbursement with Buca for more than $500,000 after he left. But the restaurant company has sued Gadel and former Buca controller John Motschenbacher in Hennepin County District Court after an internal investigation revealed that Gadel had charged Buca nearly $100,000 for vacations and visits to strip clubs, and that the defendants had orchestrated a kickback scheme with a Buca vendor.

When Gadel, 47, left the company after a new CEO was brought in, he went to work at a private company called Parasole, which is owned by Phil Roberts and Pete Mihajlov. The two men also are founders of Buca, and Mihajlov serves on Buca's board of directors.

In short, Gadel, a guy being sued for fraud by Buca, now works for a company owned by the Buca founders, one of whom is still a director of the company, and who each grossed several million bucks from the sale of their founders' stock while Gadel was Buca's chief financial officer.

"It's an unusual set of circumstances," said Mihajlov, 67, in an interview Monday. "The easiest thing for us to have done [at Parasole] would have been to fire Greg."

In 2005, an internal investigation at Buca revealed the financial fraud of Gadel, Motschenbacher and Daniel Skrypek, another financial executive. That investigation by an independent law firm was overseen by John Whaley, a venture capitalist, who is the lead outside director and a member of Buca's audit committee. The results of that investigation as well as the Buca-commissioned investigation of Micatrotto in 2004 were forwarded to federal and state authorities.

Buca sued the former executives and Great American Insurance paid the company $1.5 million to settle Buca's claim against its dishonest-employee policy.

Mihajlov, who with his family still owns 239,444 shares of Buca, said he and Roberts didn't fire Gadel from his post at Parasole because he faced up to alcoholism by going through treatment, apologized to his family and co-workers and is in the process of working through the litigation and pledging restitution for at least some of the damage he did. He also faces jail time on federal criminal charges.

Gadel, who publicly apologized last week, is expected to plead guilty in federal court later this month.

"Greg did some wrong things, and he isn't ducking that," Mihajlov said. "We have a responsibility to the shareholders of Buca. Parasole is a private company. We hired him. I told the Buca board about that at the time. And from the evidence we've seen, Greg is fighting his battles ... and he's been a stellar member of our team."

Wally Doolin, the veteran restaurant executive recruited to take over 100-restaurant Buca in November 2004, was hired by Mihajlov and the board. As he arrived, Gadel was preparing to leave Buca for Parasole.

"Pete explained [to me and the board] that he had an awkward situation," Doolin said. "Phil Roberts had put an offer out to Greg in October or November 2004 to hire Greg at Parasole. Greg wanted the job and I wanted to bring in a whole new team. It was a blessing for me."

Wendy Wildung, a lawyer for Buca, said there wasn't a problem with hiring Gadel.

"From Buca's perspective, Pete was always looking out for the best interest of Buca and its shareholders," she said.

Wednesday morning, Doolin will greet Buca shareholders at the annual meeting with some good news for a change.

The company has added two more outside board members and a new executive management.

The company has posted several consecutive quarters of sales increases and its first profitable quarter this year after several years of losses and management upheaval.

There is a renewed focus on making a buck honestly, Doolin said.

"What happened last week [with the charging of former executives] was a relief because it starts to get this chapter behind us," said Doolin, crediting loyal employees with keeping the faith during the lean times. "And this board has not been divided on anything we've done from a corporate governance standpoint."

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com