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Krispy Kreme Vows Vigorous Defense in Suit

October 07, 2005|From Associated Press

CHARLOTTE, N.C. — Krispy Kreme Doughnuts Inc. will vigorously defend itself against a lawsuit filed by its largest franchise that alleges company executives misappropriated marketing money and billed for phony charges, the company said Thursday.

Richard Reinis and Roger Glickman, two partners in Los Angeles-based Great Circle Family Foods, also alleged in their lawsuit that Krispy Kreme was trying to force their company into bankruptcy.

Krispy Kreme spokeswoman Laura Smith said Thursday that the company had been served with the lawsuit and would have no further comment beyond a short written statement pledging a vigorous defense.

Shares of Krispy Kreme fell 2 cents to $6.25.

The lawsuit filed Sept. 29 in Los Angeles County Superior Court accuses Krispy Kreme and its executives of making false representations to persuade franchise owners to personally guarantee the franchise's financial obligations. The suit also alleges that Krispy Kreme systematically inflated its prices and engaged in deceptive business practices.

Krispy Kreme also required the franchise to contribute to a brand fund that Krispy Kreme would use on marketing and advertising, Reinis and Glickman contend.

Krispy Kreme appears to have misappropriated the money and refuses to account for the expenditures, the lawsuit alleges.

Along with Krispy Kreme, the defendants include former Chief Executive Scott Livengood; Phil Waugh, former senior vice president of franchising; former Chief Operating Officer John Tate; and Kroll Zolfo Cooper, a consultant hired by the Krispy Kreme board of directors to manage the company after the departure of Livengood.

The company faces several other lawsuits, including one that alleges that workers lost millions of dollars in retirement savings because company executives hid evidence of declining sales and profit.

Krispy Kreme is also the target of a federal criminal inquiry in New York and a Securities and Exchange Commission probe into financial irregularities.

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