Things get sticky with Krispy Kreme.

• Author: Richter, Chris
• Position: Tar Heel Tattler

Walk into a Krispy Kreme store and you'll find a wall of glass through which customers can see doughnuts being made. Company executives hope their transactions can stand up to that kind of scrutiny from federal regulators.

The Securities and Exchange Commission has launched an informal inquiry into the revised earnings guidance Winston-Salem-based Krispy Kreme Doughnuts Inc. issued in May, the company says. The feds also are looking into its repurchasing of franchises. One buyback included a deal involving CEO Scott Livengood's ex-wife. The SEC doesn't comment on informal inquiries.

Blaming the popularity of low-carbohydrate diets, the company forecast in May that 2004 earnings would be 10% lower than it had projected three months earlier. That started a sell-off of shares that only got worse in August, when Krispy Kreme reported second-quarter earnings had dropped 56%.

As for the franchises, questions have risen about Krispy Kreme buying them back from former company insiders and about its accounting. The Wall Street Journal reported that Livengood owned a larger stake in a Northern California franchise than the 3% the company reported he owned in January 2001. His original stake was 6%, half of which went to his ex-wife in an August 2001 separation agreement. They divorced in 2002. The company bought his share that year for $558,000. It bought the entire market in January. His...