SEC Probe of Krispy Kreme Intensifies

U.S. securities regulators have ratcheted up their probe of Krispy Kreme Doughnuts Inc. (KKD), looking at how it repurchased some of its doughnut franchises, the company said Friday.

Krispy Kreme said in a statement the Securities and Exchange Commission (search) informed it that the company was now a subject of a formal probe.

The announcement triggered a 2.2 percent fall in Krispy Kreme's shares before the bell.

Krispy Kreme (search), which is struggling to right itself in the face of slowing sales, faces questions over the way it accounts for repurchased franchises.

The company, based in Winston-Salem, N.C., disclosed in late July that the SEC had begun an informal probe looking into transactions involving its franchises.

Krispy Kreme had begun an aggressive effort to buy back franchises from individual franchisees, some of whom included Krispy Kreme executives and other insiders.

Analysts questioned how the company had accounted for the buy backs.

Before the bell Krispy Kreme shares fell to $12.78 from their $13.07 close on the New York Stock Exchange on Thursday.