Another investor files lawsuit against Krispy Kreme

…the shares were artificially inflated by certain statements that the defendant made…They are blaming their losses on the low-carb diet craze and we think that is just a ruse to cover up the other accounting issues we have alleged."…lawsuit contends that Krispy Kreme bought several franchises back from investors to keep them from closing, not as part of a strategy of repurchasing some stores.

www.kansas.com
June 22, 2004

Another investor files lawsuit against Krispy Kreme
Associated Press

GREENSBORO, N.C. - An investor has filed a lawsuit in federal court, contending Krispy Kreme officials knowingly covered up business problems and falsely blamed a stock decline on low-carbohyrdate diets.

Lawyers filing the action in U.S. District Court here sought unspecified damages to compensate shareholders for losses in value.

Although the lawsuit seeks to become a class-action, the sole plaintiff named in papers filed Friday was Cheryl Orlov of Playa Del Ray, Calif., who had purchased 200 shares of Krispy Kreme at $31.78 a share. The stock traded at $20.22 a share Tuesday afternoon.

Krispy Kreme officials didn't immediately return phone calls seeking comment.

"We allege the shares were artificially inflated by certain statements that the defendant made," attorney Kim Donaldson of Haverford, Pa., said Tuesday. "They are blaming their losses on the low-carb diet craze and we think that is just a ruse to cover up the other accounting issues we have alleged."

In May, a New York investors group sued Krispy Kreme, claiming the Winston-Salem chain misled investors. The lawsuit by Eastside Investors claims Krispy Kreme failed to disclose that the increasing popularity of low-carbohydrate diets was hurting its sales.

The latest lawsuit, filed Friday, contends that Krispy Kreme based its growth on addition of new stores. The lawsuit said the company's wholesale business was too expensive to operate and that it saturated the market with Krispy Kreme products.

In addition, the newest lawsuit contends that Krispy Kreme bought several franchises back from investors to keep them from closing, not as part of a strategy of repurchasing some stores. On May 7, the company announced that it expected fiscal 2005 earnings to be 10 percent lower than expected and blamed it on low-carb diets. The lawsuit said the stock price fell nearly 30 percent that day to $22.51 a share.


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Risks: Raining litigation, Excuse du jour, Lawsuits, class-action, Encroachment (too many outlets in area), Franchisor takes franchisee stores, Saturates markets through multiple distribution channels, Artificially inflates share price, United States, 20040622 Another investor

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