By George Anderson
An internal investigation and report by a special committee named by Krispy Kreme's board of directors doesn't come straight out and accuse former CEO Scott Livengood of fraud but it did say that he set the tone for a company "that failed to meet its accounting and financial reporting obligations to its shareholders and the public."
Mr. Livengood and outside directors were faulted for "profiting greatly" from business practices and accounting errors designed to help the committee exceed the quarterly earnings expectations of Wall Street analysts and boost the company's stock price.
Under Mr. Livengood, the company held an objective of beating analysts' earnings estimates by a penny a quarter. Executive bonuses were tied directly to meeting this goal.
One of the methods used by Krispy Kreme to boost earnings while Mr. Livengood ran the company was the practice of shipping doughnut-making equipment to franchisees before it was needed. After making shipments, the company booked revenue even though the equipment often went unused, sitting in trailers owned by Krispy Kreme. Franchisees did not begin paying for the equipment until it was actually installed.
F. Joseph Warin, an attorney representing Mr. Livengood, said his client was pleased that the investigation had been completed but took issue with the report's tone. "We strongly disagree with the subjective speculation of the report. Mr. Livengood devoted his heart and soul to Krispy Kreme," he told The Wall Street Journal.
Krispy Kreme's former chief operating officer, John Tate, was also singled out for criticism. According to the findings of the report, Mr. Tate appeared "to have been directly involved in inappropriate efforts to increase or accelerate the recognition of revenue."
Mr. Tate's attorney, David Siegel, said his client "denies any wrongdoing."
Moderator's Comment: What went wrong at Krispy Kreme? What can be done to avoid situations such as what happened at Krispy Kreme and in similar situations elsewhere?
Michael Sutton, a former chief accountant of the Securities and Exchange Commission (SEC), and Lizanne Thomas, a partner in the law firm of Jones Day in Atlanta, led Krispy Kreme's internal investigation. - George Anderson - Moderator