Wis.-based Krones denies wrongdoing in Le-Nature's

Wis.-based Krones paying $125 million to settle Pa.'s Le-Nature's cases, denies wrongdoing

Associated Press

PITTSBURGH (AP) -- A Wisconsin bottling equipment firm will pay a $15 million penalty to avoid criminal prosecution and has agreed to pay $110 million more to settle legal claims for its alleged role in a massive accounting fraud involving defunct western Pennsylvania soft-drink maker, Le-Nature's.

Franklin, Wis.-based Krones Inc. issued a statement saying it cut the deal Thursday to avoid the "continued uncertainty and risk" involved in the legal proceedings, but denied any role in the fraud.

But U.S. Attorney David Hickton in Pittsburgh said Krones helped Le-Nature's officials deceive lenders about the cost of bottling equipment the soft-drink company financed, so Le-Nature's could borrow $118 million more than it needed for the equipment.

Hickton said that money was kicked back to Le-Nature's, whose founder Gregory Podlucky is serving a 20-year sentence for masterminding an accounting scheme in which Le-Nature's fraudulently obtained $875 million in financing before disgruntled creditors forced Le-Nature's into bankruptcy in 2006.

Hickton said the $15 million Krones is paying in the non-prosecution agreement is the largest financial penalty ever imposed in the 25-county federal court district in western Pennsylvania. It resolves criminal allegations that Krones helped Le-Nature's officials deceive lenders about the cost of bottling equipment the soft-drink company bought from Krones.

Le-Nature's officials told lenders the equipment cost roughly twice as much as Krones was charging, and Hickton contends Krones officials confirmed that false information to lenders.

Krones has also settled lawsuits and related bankruptcy claims stemming from the alleged fraud, meaning the non-prosecution agreement will cost Krones about $125 million total, Hickton confirmed.

"We entered into this agreement with Krones because we are satisfied the penalty is of a magnitude adequate to deter Krones from becoming an instrument of a criminal scheme in the future, as well as to deter others from transacting business by deceitful means," Hickton said in a statement.

But the Krones statement denies any wrongdoing, saying "Krones denies having knowingly participated in Le-Nature's fraudulent activities in any way, and admits to no fault or misconduct charged in its dealings with Le-Nature's."

Podlucky ordered his underlings to use two sets of books to overstate Le-Nature's income and assets so the company could obtain financing for the Krones equipment and other expenditures before the forced bankruptcy uncovered the criminal scheme that led to the prosecution of Podlucky and other senior executives.

Podlucky also pleaded guilty to a related money laundering scheme involving a small fraction of the $30 million or so authorities believed he siphoned from the company to fund a lavish lifestyle including gold, silver and platinum jewelry and diamond-rich watches, an 8,000-piece model train collection and $10 million spent on a mansion that was never finished.

His wife, Karla, 52, is serving 51 months in federal prison, and their son, Jesse, 32, is serving nine years, for their role in selling $2.8 million worth of gems through Sotheby's in New York. The jewels were bought with money from the fraud and the auction proceeds were used to pay Gregory Podlucky's legal bills and buy his son's $80,000 Mercedes Benz.

The overall accounting scheme cost investors, vendors and, mostly, lenders $684 million not to mention the jobs of 240 workers when the company went belly-up in Latrobe, about 40 miles east of Pittsburgh.

The government opted not to prosecute Krones after officials there cooperated with the investigation and made "internal management changes which we believe help make unlikely any similar conduct by the company in the future," Hickton said.

But Krones' statement contends "Krones was manipulated by Le-Nature's and subjected to fraudulent and unethical activities."

Krones Inc. is the American subsidiary of Krones Aktiengesellschaft, based in Neutrabling, Germany, which is also a party to the non-prosecution agreement.

Rates