Contemporary Issues in Intermediate Accounting
Prof: Dr Pinto Joanne
Le Nature’s Plunge Roils Markets by “Peter Lattman” Wall Street Journal Nov 7, 2006 (C1-C5).
The case of Le Nature Inc was an indication of the fragility of the debt markets. On Tuesday November 7, 2006 in its section “Money & Investing” Wall street Journal reported the collapse of Le Nature Inc. Founded in 1989 by “Gregory Podlucky” this closely held beverage company specialized in producing and selling drinks: flavored water, vitamin juice. Le Nature Inc went to bankruptcy under the allegations of financial wrongdoing such as falsification of financial statements and documents shredding. A court –appointed Mr. Steve Panagos as the custodian. Short time after taking function Mr. Panagos revealed that Le Nature Inc had overstated its revenues by $243 million US dollar, from 275 million posted in the financial statements compare to 32 million worth in the audited statements. He also found two sets of books; two safes and jewelry which made him believe that unsupported transactions were taken place. Just one year before its collapse, Le Nature Inc was seen as one of a fast growing and undervalued companies where big profit could be made. The company was up for sale for about 1.2 billion US dollars, but the sale was aborted. As a result of this failure of this sale two minority stockholders George K. Baum Capital Partner and SW Pelham Fund brought a lawsuit seeking to move along with selling process. Conversely as what many investors thought to be a niche, they quickly found out that their investments were in limbo.
Le Nature Inc relied heavily on debt to conduct its operations. Financial data showed that investors had contributed for 428 million US dollar in recent years. In order for management to hide their inefficiencies and failure in managing the company, they had to report financial statements which could instill investors’ confidence. In the analysis...