<$BlogRSDUrl$>

Friday, May 14, 2004

Annals of securities litigation: Krispy Kreme 

Since TigerHawk has been known to dabble in securities law and, among other things, keeps tabs on the law department of a public company, I take a certain amount of interest in securities litigation. The highly-publicized case of the week is against Krispy Kreme, the "White Castle" of donut purveyors.

It is not surprising that Krispy Kreme should find itself staring down the barrel of several different lawsuits, including one from Milberg Weiss. The price of its stock has tumbled roughly 60% from its all-time high last summer, at a time when the broader market is generally up. I don't follow the stock, but the company's growth seems to have suffered from the currently popularity of low-carb diets, which would seem to prohibit even smelling the delectible odor wafting out of the back of a Krispy Kreme store. The stock price has therefore tumbled, and the sharks are circling as a result.

The interesting thing about this matter is the apparent basis for the claims against Krispy Kreme. According to today's press coverage, which seems to be cobbled together from a press release issued by the Schiffrin Barroway firm, the facts alleged against Krispy Kreme and its management add up to a claim that the management of the firm made some mistakes:
The complaint names members of Krispy Kreme's senior management as defendants, and charges that they disregarded signs that the company had expanded too quickly, that its wholesale business undermined sales at its retail stores, and that it faced stiff competition from rival doughnut chain Dunkin' Donuts.

According to the statement, the suit also alleges that "the company ineptly accounted for how their bottom line would be affected by the popular low-carbohydrate diets; first by claiming that the trend would have no influence, and then by over-exaggerating the effect of the diet fad."

Whatever you think of corporate America in general or Krispy Kreme in particular, it is ridiculous that claims such as these aren't laughed out of court. Apparently, Krispy Kreme's management -- which is alleged first to have underestimated, and then to have overestimated, the impact of the Atkins Diet on its business -- is given no credit for changing its thinking as new facts developed. Instead, it is held to a standard of perfection in its predictions that nobody could possibly match. And what about the claim that the management disregarded "stiff competition" from Dunkin' Donuts? Its most recent 10-K suggests otherwise: "We compete against Dunkin’ Donuts, which has the largest number of outlets in the doughnut retail industry, as well as against regionally- and locally-owned doughnut shops."

Does anybody honestly think that the Krispy Kreme management doesn't worry about Dunkin' Donuts every day of the week?

There are no allegations of wrong-doing in any commonly understood sense. The only claims are that executives erred in the management of the business.

Lawsuits such as this are nothing but a shakedown for fees, serve neither the public nor the defendant's stockholders, and are every bit a financial and moral burden on our system as murky accounting, overpaid CEOs and knucklehead directors.

UPDATE (5-15 10:45 p.m.): Professor Bainbridge is on the case.

UPDATE: (5-16 10:50 a.m.): Slate's Daniel Gross argues that the Atkin's Diet has little to do with the decline in Krispy Kreme stock (via Newmark's Door). Maybe, but Gross misses the fairly basic point that when a stock is as highly valued as Krispy Kreme's was last year, even a small decline in the rate of growth of revenues can have a huge impact on the stock price.

5 Comments:

By Blogger Peter, at Sun Oct 02, 05:47:00 AM:

OVER 1 MILLION WHOLESALE PRODUCTS

at Low Factory WHOLESALE Prices in the U.S.

and Around the World!



From The Best Manufacturers, Exporters,

Wholesalers, Drop-Shippers and More!
wholesale
Profit from selling Thousands of Products at

yard/tag sales, flea markets, auctions,

newspapers car boots etc! ect!

http://massivesavings4u.com

wholesale  

By Blogger wholesale, at Sun Oct 02, 01:24:00 PM:

what?

-The wholesale man  

By Blogger ebgcommute, at Tue Oct 04, 04:24:00 PM:

Hey, interesting!
Visit my site too, relating to restore credit site. It pretty much covers restore credit and other related stuff.
Check it out later :-)  

By Blogger Mike, at Sat Oct 08, 11:42:00 AM:

Found your blog interesting. Feel free to check out my site Diet  

By Blogger 沼泽地, at Mon Dec 29, 06:46:00 PM:

Dog tags
Metal Badges
Printing Badges
Lapel Pins Manufacturer
Cuff Links
Metal Badges
Bottle Openers
Medals
key chains
trading pin
Flag Lapel Pins
Police Badge
Coin
wristbands wholesale
Disney Pins Wholesale
mouse pads manufacturer
mouse pads
Lapel Pins Manufacturer
电脑外设
电脑周边
电脑周边批发
电脑外设批发
电脑配件批发
摄像头批发
U盘批发
鼠标批发
mp3mp4批发
饰品批发
水晶饰品批发
小饰品批发
韩国饰品批发
925银饰
情侣饰品批发
银饰批发
925银饰批发
流行饰品批发
珠宝首饰批发
泰银批发
小商品批发
饰品免费代销  

Post a Comment


This page is powered by Blogger. Isn't yours?