Podlucky served as Le-Nature's chief executive officer (CEO) and relied principally on his family and wide circle of friends and business associates to staff the company's other key positions as it expanded over the years. He hired his brother, Jonathan, to serve as Le-Nature's chief operating officer (COO) and placed his 22-year-old son Jesse in charge of the day-to-day accounting for Le-Nature's large subsidiary that produced bottled tea products. Among the friends that he appointed to management positions at Le-Nature's was Robert Lynn, who had multiple titles over the years with the company including executive vice president of sales.
Despite serving as Le-Nature's CEO, Gregory Podlucky was also heavily involved in the company's "routine accounting functions."2 "Director of Accounting" was the title held by the organization's chief accountant, a position occupied by Tammy Andreycak, another close friend of Podlucky. Andreycak was a single mother who did not have a college degree or formal training in accounting. According to company insiders, her primary role within Le-Nature's was serving as Podlucky's confidante. When dealing with third parties, Podlucky often referred to Andreycak as his "secretary." A common nemesis of a rapidly growing small company is a shortage of capital.
Gregory Podlucky relied on different strategies to finance his company's expanding operations. During the 14 years that he served as Le-Nature's CEO, the articulate and outgoing Podlucky raised almost $1 billion of debt and equity capital for the company.
In 1999, Podlucky retained a financial consulting firm to identify potential investors for Le-Nature's. In 2000 and 2002, that consulting firm arranged for two investment funds to collectively purchase eight million shares of Le-Nature's preferred stock which they had the right to convert into the company's common stock. If the two funds had exercised the convertibility option, they would have controlled 45 percent of Le-Nature's outstanding common stock; Podlucky owned all of his company's outstanding common stock throughout its existence.
The sales of preferred stock raised nearly $30 million for Le-Nature's. Those transactions directly impacted Le-Nature's corporate governance structure because each of the investment funds that purchased the preferred stock had the right to appoint an individual to the company's board of directors. The majority of the board consisted of "inside" directors including Podlucky, his brother, Jonathan, and other senior company executives.
Another financing technique used by Podlucky was long-term equipment leasing.
In one such transaction, Podlucky retained a North Carolina leasing agent to contract with a Wisconsin-based company that was a subsidiary of a German manufacturing firm. The German firm manufactured equipment Le-Nature's used in its bottling operations. With the North Carolina leasing agent serving as an intermediary, Le-Nature's leased the equipment from the Wisconsin subsidiary of the German firm.
The leasing agreement required Le-Nature's to make a large escrow deposit with the leasing agent; Le-Nature's borrowed those funds from a U.S. lender. In total, Podlucky financed the acquisition of approximately $300 million of equipment in this manner.
The primary method Podlucky used to raise funds for his company was conventional long-term borrowing arrangements. Wachovia, a diversified financial services firm based in North Carolina, arranged or underwrote approximately $500 million of long-term debt for Le-Nature's.3 In 2005, for example, Wachovia marketed a $150 million bond issue for the company. The high-yield or "junk" bonds were sold primarily to pension and retirement funds such as California Public Employees Retirement System (CalPERS), the nation's largest pension fund.
Podlucky relied heavily on Le-Nature's' audited financial statements to borrow funds for his company. Take the case of the $150 million bond issue. Wachovia included Le-Nature's audited financial statements with the promotional materials for those bonds. Likewise, Moody's Investors Service accessed and relied on Le-Nature's financial statements to assign credit ratings to those bonds and the company's other outstanding debt obligations.

Questions
1. Identify the parties impacted by the quality and rigor of an organization's corporate governance. What responsibilities do corporate executives have to those parties?
2. Identify and describe the corporate governance-related responsibilities of corporate accountants, independent auditors, and external accountants hired by companies to perform forensic investigations.
3. Identify the apparent flaws in Le-Nature's corporate governance. Relate those flaws to the five components of the COSO internal control framework and the "fraud triangle."
4. Le-Nature's was not an SEC registrant. Identify corporate governance safeguards imposed on SEC registrants that are not imposed on non-SEC registrants.
5. Following the Special Committee investigation in late 2003, Le-Nature's dismissed EY and retained BDO Seidman to serve as its independent audit firm. What safeguards are in place to mitigate the impact of auditor changes on the credibility and integrity of the independent audit function?
6. Identify the key differences between a "quarterly review" and an "annual audit" performed by an organization's independent auditors.
7. Pascarella & Wiker was retained by K & L Gates to assist in the fraud investigation requested by Le-Nature's Special Committee. What type of professional service was Pascarella & Wiker providing? What professional standards governed Pascarella & Wiker's conduct during the provision of that service?