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Krones To Pay $15M In Le-Nature's Case

U.S. Attorney David Hickton of Pittsburgh said the largest financial penalty ever imposed in the 25-county federal court district in western Pennsylvania resolves allegations that Krones Inc., of Franklin, Wis., helped Le-Nature's officials deceive lenders about the cost of bottling equipment the soft-drink company bought from Krones.

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

U.S. Attorney David Hickton of Pittsburgh said the largest financial penalty ever imposed in the 25-county federal court district in western Pennsylvania resolves allegations that Krones Inc., of Franklin, Wis., 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. Krones officials confirmed that false information to lenders who then sent Krones about $118 million more than the equipment cost — money which Krones then forwarded to Le-Natures, Hickton said.

Krones has settled lawsuits stemming from the alleged fraud, and must also repay money that has yet to be recovered, meaning the non-prosecution agreement will cost Krones about $125 million total, Hickton said.

"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.

Le-Nature's founder Gregory Podlucky is serving a 20-year sentence for masterminding an accounting scheme in which the company used two sets of books to overstate its income and assets so it could fraudulently obtain $875 million in credit and equipment leases before creditors forced Le-Nature's into bankruptcy in 2006.

That forced bankruptcy uncovered a 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, is serving 51 months in federal prison, and their son, Jesse, 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 an $80,000 Mercedes Benz for Jesse.

The scheme cost investors, vendors and, mostly, lenders $684 million when the company went belly-up, not to mention the jobs of 240 workers at the company 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.

The prosecutor did not specify those changes.

A spokeswoman for Krones did not immediately comment Thursday, saying the company planned to release a statement later in the day.

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

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