Donut (a) Holes Get Very Sweet Deal
Last week the SEC reached a settlement with three former Krispy Kreme executives, resulting in fines and a promise by current management to refrain from misconduct in the future. Donut CEO Scott Livengood was ordered to pay $467,000 for what the SEC termed “disgorgement of illgotten gains,” as well as $75,000 in civil penalties, for a total of $542,000. Meanwhile, former COO John Tate and CFO Randy Casstevens were made to pay $146,000 and $103,000 respectively in total settlement money. Together, the three men must pay the government $783,000 for their misdeeds. That may sound like stiff punishment until you consider that while they were riding high back in 2003, this gang sold 324,000 shares of Krispy Kreme stock at a purchase price of no less than $40. That means they pocketed at least $13 million while driving stock prices (and the company’s reputation) into the ground. Thus, the SEC fines amounted to less than 8 percent of those “illgotten gains.” As such, the government has missed a golden opportunity to make an example of these men who represented the kind of unabashed greed that was left unchecked throughout much of this decade. It wasn’t always that way in this country, or with Krispy Kreme, whose mission was to make an honest profit from the sale of a guilty pleasure. As a boy I recall looking forward to when the neon sign outside Krispy Kreme’s Stratford road store would flash the words, “Hot Now,” signaling to hungry customers that we could snag some fresh glazed donuts right off the conveyer belt. But the sweet smell turned sour for Krispy Kreme under the unable hand of Scott Livengood. Driven by a Napoleonic-like complex to conquer the world, Livengood was hell-bent on expanding the company at breakneck speed. Had he done so honestly, then his only crime would have been one of blind enthusiasm for a great product, and a naivete of the marketplace, which, at that time, was buying less fatty foods. But Livengood’s expansion was tainted by voodoo accounting practices, and by deliberate manipulation of stock prices, which went from $48.90 in August 2003 to just $5.74 by December 2005. Before the SEC entered the picture, though, Krispy Kreme fired Livengood’s team and launched an internal investigation. That triggered a shareholder revolt, which resulted in Krispy Kreme paying out $75 million to end a class-action suit.
The scheme by the Livengood gang was brilliant. Back in 2003, Krispy Kreme policy stated that no bonuses would be paid to senior officers unless the company’s quarterly earnings exceeded earnings per share by at least one penny. Scotty then engineered a plan to inflate those earnings and place stock prices at a much higher level thanthey actually were. When the manipulation scam was at its peak, thelawless firm of Livengood, Tate and Casstevens sold their shares andmade a killing before the sugar hit the fan. To date, none of the threeperpetrators has issued a public apology for their actions, and thatmay not set well with shareholders who could launch yet another classaction based upon the full SEC probe. And, according to the Winston-Salem Journal, somefinancial analysts predict that a federal probe into criminalwrongdoing may not be far behind. But whether additional litigation orinvestigations are forthcoming, the once proud Krispy Kreme name hasbeen irreparably sullied by Livengood. People areunderstandably angry that the SEC let Scott and his boys off with aslap on the wrist. By all rights they should have been made to forfeittheir entire fortunes and let the government distribute that money tothe people they screwed. And they should do jail time too. After all,Martha Stewart served five months for her victimless crime. The leastwe can do for these donut makers is to give them an even dozen.
That means they pocketed at least $13 million dollars while driving stock prices (and the company’s reputation) into the ground.
Jim Longworth is the host of “Triad Today,” airing on Fridays at6:30 a.m. on ABC 45 (cable channel 7) and Sundays at 10 p.m. on WMYV(cable channel 15).