SEC to Krispy Kreme: Don't Do That Again

On top of the punishments imposed Wednesday by the Securities and Exchange Commission on three former executives of Krispy Kreme came an order that the company must never again commit the financial crimes of which the men were accused—cooking the books to inflate results.

Krispy Kreme must "cease and desist from committing or causing violations and future violations of" certain specific laws and regulations, the SEC announced on its Web site. The company promised that it wouldn't and went back to making donuts.

The three executives must pay more than $783,000 to settle the claims against them. The company was not fined at all.

Former CEO Scott Livengood, former COO John Tate, and former CFO Randy Casstevens were accused of tricking investors in 2004 by accounting for compensation expenses in a way that allowed the company to hit its goal of beating its profit forecast by a penny per share. Tate was also accused of making a "bogus" transaction to book income that didn't exist. (Numbers nerds can go here for details.)

Livengood and six other executives were ousted in 2005 after an internal investigation uncovered the chicanery. The company, which should have been capitalizing on its one-time popularity (new store openings once drew Ikea-like buzz) to take market share away from Dunkin' Donuts chain, had to pay $75 million to investors as part of a settlement of a shareholder lawsuit in 2006.

Livengood's lawyer told Bloomberg News that the disgraced executive "is pleased to have resolved this technical accounting case that happened more than 5 ½ years ago."

In other words, hey, this was all just complicated math stuff, not a crime, and anyway, it was so long ago.

Casstevens lawyer said his client is also "pleased" by the outcome. All he was guilty of, the lawyer told Bloomberg, was "negligence in application of accounting judgments, as opposed to intentional misconduct or intentionally fraudulent activity."

Hank Greenberg, then a columnist for then-CBS Marketwatch, named Livengood the "Worst CEO of 2004"—and this was before the SEC had filed its charges, though the agency's probe was under way. "Livengood has presided over the destruction of more shareholder value than almost any other CEO this year," Greenberg wrote, "and it was result of greed, questionable dealings with insiders and falling into the trap of believing his own press clippings rather than paying attention to the details of the business."

At the time, Livengood was blaming the company's weakness on the low-carb craze. Dunkin' Donuts, meanwhile, was in crazy-growth mode.

These days, Livengood, with his Dickensian name, is the CEO of Dewey's, a local bakery with two locations in Winston-Salem, N.C. The headquarters are less than three miles down the road from Krispy Kreme's main office.  

After Krispy Kreme, Tate went on to become COO of Restoration Hardware in 2004. His tenure there raised questions in 2005 when the results of Krispy Kreme's internal probe were announced.  Tate left the job for "personal reasons" the following March. He now heads an outfit, also in Winston-Salem, called Human Strategy Partners, which according to its Web site serves "to help companies prepare for liquidity events."

Casstevens, according to his LinkedIn page, is the head of something called "New Horizons LLC," a consultancy also located in Winston-Salem. New Horizons apparently has no presence on the Web. Among his skills, Casstevens lists "financial modeling."