A good read about greed…

While there’s lots of stories this morning about Krispy Kreme’s (KKD) mea culpa, the report filed with the SEC earlier today makes for some great reading about greed. Early readers of will remember that I first warned about Krispy Kreme here in September 2003, back when the stock was still trading in the $40s. The non-news in the report is that former CEO Scott Livengood and former COO John Tate are blamed for setting a “corporate culture driven by a narrowly focused goal of exceeding projected earnings by a penny each quarter.” Really? Of course, the same could be said for any number of top executives who are carefully counting their options. Earnings management isn’t exactly new and it’s not likely to end anytime soon.

But some parts of the 40-page report make for some interesting reading, such as this passage on accounting: “These failures led or contributed to accounting errors — substantially all of which had the effect of increasing EPS, at the same time that Livengood, Tate and others were profiting greatly from stock options, cash bonuses tied to EPS growth and generous perquisites.”

Or this section on an incentive plan which the group described as “especially troubling to us” that found that the company’s top executives and numerous directors had sold large amounts of stock “at or about the highest trading price that KKD ever reached” based on false numbers. Perhaps that’s why the board didn’t bother asking questions: they were too busy cashing in.

There’s also some interesting reading on the various round–trip deals that I wrote about in September 2003 based on KKD’s sketchy disclosures, many of which involved top executives or relatives of top executives and took place shortly before the close of the quarter. Also interesting is that Livengood refused to cooperate with the investigation, declining to be interviewed in May 2005 and as a result, forfeited the salary and health benefits he was receiving under a consulting contract signed when he resigned in January 2005.

Finally, the report also shows why it’s important to pay attention when a company seems to go through CFOs: Krispy Kreme had three in four years.