$285M Transaction Seemed Curious to LeNature's CFO

Article excerpt

In 2002, when Grant Rice was an executive at Banc of America Securities, Gregory Podlucky, then CEO of LeNature's Inc., asked the bank for money to expand his company's production of water, fruit juices and teas at its plant in Latrobe and build a new facility in Arizona.

But Banc of America officials balked at the idea, claiming LeNature's executives "could not be trusted," according to court records.

Negotiations with LeNature's came to a grinding halt -- but not for long.

A year later, Rice left Banc of America Securities to work for Wachovia Bank, and despite his former employer's reservations about LeNature's, he helped complete the deal with Podlucky, according to a lawsuit against Wachovia.

In the end, LeNature's ended up with more than $285 million in loans and junk bonds, court records indicate.

And Wachovia ended up with a raft of legal problems stemming from the transaction.

Wachovia Bank and its affiliate, Wachovia Capital Markets, find themselves the target of a lawsuit filed by officials running a group of hedge funds and other financial institutions that allege the bank, the beverage maker's accounting firm and LeNature's officials conspired to withhold critical financial information from potential investors because they knew the now-bankrupt LeNature's financial records were inaccurate.

Hedge funds are made up of investors who pool large sums of money for speculating in securities, often taking large risks, such as buying with borrowed funds.

The allegations have led to a criminal probe of the beleaguered beverage maker by the U.S. Attorney's Office, the Internal Revenue Service, U.S. postal inspectors and the U.S. Securities and Exchange Commission.

LeNature's losses stand at nearly $1 billion, according to bankruptcy court testimony.

Meanwhile, federal investigators are trying to find money that officials believe Podlucky siphoned from bank loans and bond sales - - money that was supposed to be used to expand his LeNature's empire, according to court records.

Attorney Michael Carlinsky of New York, who represents a group of hedge funds that sued Wachovia, said he plans to file another lawsuit against Wachovia on behalf of the investors who purchased $150 million worth of junk bonds for LeNature's. A junk bond carries a higher risk and a higher yield on any earnings to attract investors.

"Frauds of this magnitude don't happen without the help of others," Carlinsky said.

In 2003, Rice shepherded Wachovia's deal with LeNature's even though he knew about Banc of America's reservations about the company, the lawsuit charges.

Wachovia officials said Rice left about four weeks ago to work for another firm. They said his departure had nothing to do with the LeNature's deal.

When contacted, Rice refused to comment on the matter.

In an interview, onetime LeNature's chief financial officer John Higbee said Rice had a close relationship with LeNature's and helped arrange the $150 million junk bond deal. He said Rice seemed undeterred by apparent internal problems at LeNature's.

"A lot of changes happened at Latrobe, but nothing seemed to faze him," Higbee said.

The lawsuit also recounts how Podlucky inexplicably offered Wachovia a higher commission for the bank's efforts. …