WINSTON-SALEM N.C. After more than four years under investigation by the Securities and Exchange Commission, Krispy Kreme Doughnuts Inc. settled its case and three former executives agreed to pay fines and return gains on stock sales.
Neither Krispy Kreme nor the former executives — Scott Livengood, who served as chief executive, John Tate, who served as chief operating officer, and Randy Casstevens, who served as chief financial officer — admitted any wrongdoing.
Krispy Kreme, which currently operates or franchises about 520 locations, was not ordered to pay any fines and no sanctions were imposed on the company.
“We are pleased that the SEC investigation has concluded on satisfactory terms, with no monetary penalty against the company,” Darryl Marsch, senior vice president and general counsel for Krispy Kreme, said in a statement Wednesday. “Today, we can finally close the book on this investigation into the events that occurred under former Krispy Kreme management.”
The SEC found that the former officers had inflated corporate earnings in 2003 and 2004 using accounting shenanigans that helped Krispy Kreme consistently report per-share profits at least 1 cent above corporate guidance. The executives used accruals and then reversals of expenses related to the company’s incentive compensation plan, as well as fraudulent deal values and “round-trip” purchases of franchised locations, to boost net income, according to the SEC findings. Round-trip deals refer to the buying of an asset for the promise that it will be sold back for the same amount.
The three men also sold stock holdings and options at all-time high prices, the SEC said. They agreed to pay fines and return ill-gotten gains and interest, the amount of which was not totaled in SEC documents. Reports have placed the total amount around $780,000.
Krispy Kreme went public in April 2000 and quickly became a Wall Street favorite as the chain continued to grow and numbers were always hit. In 2004, sales began to slow and accounting investigations began. The former executives under scrutiny resigned and Krispy Kreme restated its financial results — many to show declining sales and profits — in late 2007. Today, the company is franchising overseas and still struggling against weak sales in the United States. Its stock, which at its height traded above $50 per share, now trades around $1 per share.
Contact Sarah E. Lockyer at [email protected].
