Management Accounting Case Book

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

Michael C. KnappMcLaughlin Chair in Business Ethics and Professor of AccountingUniversity of Oklahoma

Carol A. KnappAssistant ProfessorUniversity of Oklahoma

INTRODUCTION

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 ...