Krispy Kreme Stock Tumbles Amid U.S. Probe

Shares of Krispy Kreme Doughnuts Inc. dropped nearly 7% on Thursday after the company said it was cooperating with an investigation by federal prosecutors who want to interview current and former executives.

The Winston-Salem, N.C.-based doughnut chain said it believed the probe by the U.S. attorney for the Southern District of New York was related to matters already under formal investigation by the Securities and Exchange Commission.

Although Thursday’s news involved no new accusations against the company, investors continued their yearlong flight from once-hot Krispy Kreme shares.

The company’s stock fell 39 cents to $5.36 on the New York Stock Exchange, below its previous 52-week low of $5.50. Less than two years ago, the stock was trading at nearly $50.

Carl Sibilski, an analyst at Chicago-based Morningstar, said the news of yet another investigation was the last thing investors wanted to hear about Krispy Kreme.

“It doesn’t appear to me the New York investigation is focusing on anything we don’t already know about,” he said, “but it heightens concerns and raises its visibility if more entities are investigating the company.”

Krispy Kreme is under formal SEC investigation of its franchise buybacks and earnings outlooks and is facing shareholder lawsuits. The SEC probe was announced in October.

Allegations included in the lawsuits and being looked into by the SEC include that Krispy Kreme improperly recorded payments to former franchise owners in Michigan and Northern California as compensation, rather than as the cost of buying back their franchises.