The Securities and Exchange Commission announced that on March 4, 2009, it filed a Complaint in the United States District Court for the Middle District of North Carolina against three former executives of Krispy Kreme Doughnuts, Inc.: Scott A. Livengood,Chairman, President, and Chief Executive Officer, John W. Tate, Chief Operating Officer, and Randy S. Casstevens, Chief Financial Officer.
The SEC Complaint alleges that between February 2003 and May 2004, Krispy Kreme inflated its quarterly and annual earnings and omitted to disclose the impact of certain adjustments to report quarterly earnings per share that exceeded its previously announced EPS guidance by one cent. The Company under-accrued or reversed previously accrued incentive compensation expense pursuant to Krispy Kreme’s Senior Executive Incentive Compensation Plan. The under-accruals and reversals were inconsistent with the formal incentive plan and were performed to inflate the Company’s earnings to exceed the Company’s guidance by one cent. The Complaint alleges that the defendants understood the existence and significance of the under accrual and the reversals to the Company’s earnings, yet failed to disclose either to the public. Livengood and Casstevens also signed and certified Krispy Kreme filings that misstated the Company’s financial performance.
The Complaint also alleges that each of the defendants sold stock following the Company’s earnings announcement for the second quarter of fiscal 2004.
The Complaint charges:
- Livengood with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Rule 13a-14, promulgated under the Securities Exchange Act of 1934, and aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.
- Tate with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 13(b)(5) of the Exchange Act and Rule 13b2-1, promulgated under the Exchange Act, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13.
- Casstevens with violations of Section 17(a)(3) of the Securities Act and Section 13(b)(5) of the Exchange Act and Rules 13a-14 and 13b2-1, promulgated under the Exchange Act, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13.
On the same day the Complaint was filed, the defendants consented to orders permanently enjoining the defendants from future violations, disgorgement of ill-gotten gains with prejudgment interest, and the imposition of civil penalties against defendants. The three former executives agreed to pay a total of $150,000 in fines and $632,919 in ill-gotten gains and interest.
See also:
- SEC Complaint – hosted on JD Supra
- SEC Settles Investigation of Krispy Kreme from WSJ.com
In the interest of full disclosure, I used to own some Krispy Kreme stock, lost a chunk of the investment and received a paltry settlement as part of the securities class action.