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KKD / Krispy Kreme faces another federal probe

February 24, 2005 09:38:22 (ET)


CHICAGO (MarketWatch) - Krispy Kreme Doughnuts Inc. is facing yet another federal investigation of its accounting.

Winston-Salem, N.C.-based maker of the original hot glazed doughnut said Thursday that it has been put on notice that the U.S. Attorney's Office for the Southern District of New York is looking at the company.

Shares of Krispy Kreme (KKD, Trade) sat at $5.75 at the market's open.

The federal agency told the company it will talk to certain current and former officers and employees of the company. Though the agency didn't detail what it was investigating, the company believes it relates to the Securities and Exchange Commission's in-depth review of how the company has accounted for the acquisition of certain franchised Krispy Kreme businesses, particularly those that may have been owned by families and friends of officers.

Krispy Kreme is teetering on the brink of bankruptcy after disclosing earlier this month that it is facing a cash crunch. Also this month, the company layed off a number of people and said it would take at least $600,000 in charges to cover the costs.

Last month, Krispy Kreme posted its first fourth-quarter loss since going public; forced out its chief executive Scott Livengood; and hired turnaround specialist Stephen Cooper to take the helm.

Since the SEC began its probe last year, the company has lost most of its market capitalization. Since May, shares of Krispy Kreme have plunged nearly $30.

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