New Krispy Kreme Probe Begins

After spending part of last year under an SEC microscope, the doughnut company is once again the subject of a regulatory probe.
Lisa YoonFebruary 25, 2005

For a second time, Krispy Kreme Doughnuts Inc. is the subject of a federal investigation concerning its accounting practices for repurchasing its franchises.

The Winston-Salem, N.C. -based doughnut maker announced Thursday that the U.S. Attorney’s Office for the Southern District of New York will interview current and former executives and employees of the company.

Though company officials did not provide details of the investigation, they said they believe it concerns matters already under formal investigation by the Securities and Exchange Commission. Last August, the SEC began an informal probe into the way Krispy Kreme accounts for its repurchase of franchises owned by executives or their family members. In October, that investigation became formal.

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The U.S. Attorney’s investigation is the latest in a series of problems for the once high-flying company. Earlier this month, Krispy Kreme management announced it would lay off around 25 percent of its workforce. The company also divested a company airplane, taking a $300,000 charge, and reported a cash crunch and a credit default date coming in March.

In January, Krispy Kreme said it would restate financial results for fiscal year 2004, with adjustments between $6 million and $8 million. Some of the major adjustments involved recording payments to former franchise owners as compensation expenses rather than as purchase prices.

In January, Scott Livengood resigned as the company’s chief executive. Turnaround specialist Stephen Cooper, most recently interim head and chief restructuring officer of Enron Corp., was hired to take the helm.