Consumer favorite Krispy Kreme Doughnuts Inc. said that the ongoing probe into its accounting practices by the Securities and Exchange Commission has become a formal investigation.

In July, the commission announced that it was conducting an informal probe into the 380-unit operator and franchisor, focusing on accounting methods used in several repurchases of franchised territories and a sudden profit warning that it issued in May, citing the trend of low-carb diets.

The earnings warning subsequently triggered a number of shareholder suits that charged that Krispy Kreme had expanded too quickly and that its wholesale business had cannibalized sales from its retail arm.

Krispy Kreme said that it would cooperate with the SEC investigation.

Just last week Krispy Kreme appointed a pair of outside directors to spearhead an internal investigation of the accounting practices and the shareholder claims.

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