The Le-Nature’s Inc. Fraud: What Happened and Why?

ISSN 1940-204X

Le-Nature’s Inc. Fraud: What Happened and Why?

Michael C. Knapp

McLaughlin Chair in Business Ethics and

Professor of Accounting

University of Oklahoma

Carol A. Knapp

Assistant Professor

University of Oklahoma

INTRODUCTION

STRATEGIC FINANCING

After graduating from West Virginia University in 1984 with a

degree in accounting and finance, Gregory Podlucky decided

to work with his father Gabriel, who had a small business

empire in western Pennsylvania that included a chain of

auto parts stores, an ethanol fuel company, several real estate

properties, and the Jones Brewing Company, best known for

its line of Stoney’s beers.

In 1989 Gregory Podlucky decided to strike out on his

own. Using the funds he obtained from cashing out his

ownership interest in his father’s businesses, Podlucky

established a water bottling venture in Latrobe, Pa.,

the hometown of golfing great Arnold Palmer. In 1992,

entrepreneur and former CPA Podlucky expanded his

product line to include a wide range of flavored water, fruit,

and tea drinks.

Despite being in the hypercompetitive beverage

industry, Podlucky’s company, which he ultimately named

Le-Nature’s Inc., grew rapidly. By 2006, the company was

the 33rd largest beverage producer in the United States,

with annual reported sales approaching $290 million and a

workforce of several hundred employees. One year earlier,

Podlucky had rejected a $1.2 billion offer to sell Le-Nature’s.

Instead of selling, Podlucky decided to take his company

public. Unfortunately for him, his fellow investors, and his

company’s many creditors, that dream was never realized.

Podlucky served as Le-Nature’s chief executive officer

(CEO) and relied principally on his family and wide circle

of friends and business associates to staff the company’s

other key positions as it expanded over the years. He hired

his brother Jonathan to serve as Le-Nature’s chief operating

officer (COO) and placed his 22-year-old son Jesse in charge

of the day-to-day...