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Impurities at Bottled Water Company

October 5, 2009

The former CEO and four other executives of the defunct bottled water and beverage company Le Nature, Inc. have been indicted on charges of conspiracy, bank fraud, wire fraud, mail fraud and money laundering for bilking investors and lenders out of $806 million. The indictment names Le Nature founder and CEO Gregory Podlucky and other company executives for creating “false financial statements, including false invoices, false customer checks, false documentation of transfers or expenditures, and false account statements…to induce large extensions of credit and investments….” In a separate indictment, Podlucky is charged with income tax evasion for the 2003 to 2006 years.

A  2004 piece on Le Nature noted that the company’s desire to expand one facility was on hold, but that Podlucky “seems to revel in finding new ways to do more with less.” In truth, Podlucky seemed intent on using classic old schemes to make less appear to be more. Among the allegations against the former CEO are that he ran company finances as a Ponzi scheme and skimmed $110 million from phony and bait-and-switch equipment purchases.

In 2006, Le Nature was sued by two groups of investors who charged that Podlucky was burdening the company with debt and shunning his duty to shareholders by rejecting a $1.2 billion buyout offer. The shareholders charged that the unnamed suitor dropped its bid when Podlucky refused to allow the potential buyer to review the company’s finances. The investors also alleged that when they met with Podlucky and requested financial statements, they waited two hours before being forced out of the building.

Wachovia National Bank of Charlotte, N.C. was deeply involved as Le Nature’s chief lender. Wachovia reportedly kept Le Nature afloat with $600 million in financing, loaning the company funds even after its own analysts found the company’s financial records “frankly worthless.” Le Nature would reduce its liability by selling its debt to other lenders and hedge funds, while Wachovia’s investment banking unit brought in $7.1 million for a few days work. Wachovia was named as a co-defendant in a 2008 lawsuit against the company, but the bank has portrayed itself as a victim of Le Nature’s scams. Last month, a federal judge denied the Wachovia’s request to dismiss it as a defendant.

The lawsuits against Le Nature helped push the company into bankruptcy proceedings and led to Podlucky’s ouster. The court-appointed custodian stated in an affidavit that the company had destroyed large volumes of documents in violation of a court order. The custodian told the Wall Street Journal’s Law Blog, “I thought that this company was a profitable little company with a lot of cash flow and from showing up at the door and working through the weekend we discovered the opposite was true.” He later noted that while Le Nature’s audited 2005 financials showed revenue of $275 million, company records suggested revenue was actually as low as $32 million.

Podlucky faces a maximum 255 years in prison and an $8.5 million fine for the financial charges and up to 20 years in prison and a $1 million fine if convicted of tax evasion.

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