FORMER BAT EXECUTIVE ARRESTED.

Byline: Ben Sullivan Daily News Staff Writer

A former executive at BAT International Inc. has been arrested at a hotel near the company's headquarters for allegedly running a prostitution ring out of the company's front office, company officials said Thursday.

Diane Salutare, a former lingerie shop owner who has worked at BAT since January, was arrested July 30 while eating lunch at the Burbank Airport Hilton hotel across the street from BAT headquarters. Salutare, 40, was arrested by detectives from the Los Angeles Police Department's organized crime and vice division on suspicion of pandering and was later released on $25,000 bail.

According to company officials, police also entered BAT offices after the arrest and removed a file from Salutare's desk but did not search the premises.

In a brief interview Thursday, Salutare said only that the charges were groundless. ``Nothing happened,'' she said.

Salutare is the girlfriend of BAT founder and Chief Executive Joseph LaStella and most recently served as the company's controller. Though she left her full-time position with BAT in July, Salutare still works one day a week keeping the company's books, said LaStella, who posted her bail.

Salutare acknowledged she ran a lingerie business at least in part out of BAT's office. She advertised in area newspapers for models to wear lingerie samples at parties she organized to sell the clothing. But police allege Salutare also arranged work for some of the women as prostitutes, LaStella said.

Beyond confirming Salutare's arrest, police would not comment on the case.

Company spokesman Bill Wason said no other employees at BAT were aware of any of the alleged activities.

LaStella said he blames disgruntled former employees for leading police on a wild goose chase. ``But I guess we'll find out in court,'' he said.

Pandering carries a maximum sentence of six years in prison.

Burbank-based BAT made headlines earlier this year when the engineering firm announced it had developed an internal combustion automobile engine capable of achieving more than 100 miles per gallon. The announcement sent the company's stock skyrocketing in a matter of weeks from 6 cents a share to a peak of more than $3 before falling again. That meteoric rise led to an ongoing investigation by the Securities and Exchange Commission.

In addition to automotive engineering, BAT announced plans this year to enter the electricity market and has also begun marketing an automotive lubricant called SuperBAT.

BAT shares closed Thursday unchanged at 50 cents.