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Krispy Kreme shares fall nearly 7 on news of federal investigation

CHARLOTTE, N.C. -- Shares of Krispy Kreme Doughnuts Inc. dropped nearly 7 percent yesterday after the company said it is cooperating with an investigation by federal prosecutors who want to interview current and former executives.

The Winston-Salem-based doughnut chain said it believes the probe by the US attorney for the Southern District of New York is related to matters already under formal investigation by the Securities and Exchange Commission.

While yesterday's news involved no new accusations against the company, investors continued their yearlong flight from once-hot Krispy Kreme shares.

The company's stock fell 39 cents, or 6.8 percent, to close at $5.36 yesterday in trading on the New York Stock Exchange, below its previous 52-week low of $5.50. Less than two years ago, the stock was trading at nearly $50.

Krispy Kreme is under formal SEC investigation of its franchise buybacks and earnings outlooks and is facing shareholder lawsuits. The company said it has created a special committee of independent directors to investigate all matters being probed.

Analysts have expressed concern that the company, once a Wall Street darling, may be headed for bankruptcy.

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