Banking & Capital Markets

Wachovia Sued over Drink Company’s Spill

Creditors of Le Nature's Inc. allege that the bank syndicated a loan for the beverage company despite being aware of financial fraud.
Stephen TaubSeptember 18, 2007

Institutional investors led by Harbinger Capital Partners have sued Wachovia, claiming the bank knew of financial fraud at Le Nature’s before it put together a $285 million loan to the beverage company, according to Reuters.

Le Nature’s filed for Chapter 11 protection last year after a judge determined that founder and chief executive officer Gregory J. Podlucky and other directors may have engaged in criminal conduct by misreporting financial information.

In August 2006, Podlucky received a $1.2 billion offer for the company but refused to permit the potential buyer to review financial records, according to a report in the Pittsburgh Tribune Review at the time. The company’s 2005 financial statements reported revenues of $275 million, but according to the AP, the actual amount may have been as low as $32 million. The wire service also noted that as of late last year, the company had more than $278 million in bank debt, about $150 million in bond debt, $300 million in capital lease obligations, and various other liabilities. The lawsuit alleges that Wachovia failed to disclose full details of the company’s financial situation to lenders, according to Reuters.

According to the lawsuit, Le Nature’s borrowed $285 million in a loan administered by Wachovia in September 2006. “Wachovia knew that, had the real situation at Le Nature’s been revealed, it would have been unable to syndicate the September 2006 loan,” the lawsuit reportedly says. “But Wachovia’s motivation to hide the true facts, and to structure, fund and syndicate the credit facility was strong.”

Wachovia spokeswoman Christy Phillips-Brown told Reuters the bank would seek to have the lawsuit dismissed. “As we’ve said before, Wachovia is a victim in the Le Nature’s fraud as are a number of other companies,” she reportedly said.

The lawsuit also reportedly says Wachovia had “become a trusted adviser and confidant to the company and its executives” and had secured tens of millions of dollars in fees by structuring and underwriting its bank facilities and securities issuances.

“Together with Le Nature’s’ management, Wachovia also engaged in extensive efforts, over several years, to sell the company,” the lawsuit also states, according to Reuters.

The Associated Press noted that the lawsuit also names BDO Seidman LLP, which was Le Nature’s outside auditor, and Gregory J. Podlucky, Le Nature’s chairman and chief executive, as defendants. Reuters said two Le Nature’s executives were named as defendants.