UPDATE 1-Debt holders sue Wachovia over Le Nature's loan

(Adds BDO Seidman comment in 7th paragraph)

By Martha Graybow

NEW YORK, Sept 18 (Reuters) - A group of debt holders sued Wachovia Corp WB.N on Tuesday, contending that the bank knew of financial fraud at Le Nature's Inc. before arranging a $285 million loan to the now-bankrupt beverage company.

The lawsuit, brought by Harbinger Capital Partners and other holders of the debt, accuses the bank as well as its outside auditor of failing to disclose full details of the company's financial situation to lenders.

Le Nature's, based in Latrobe, Pennsylvania, ceased operations in November 2006 soon after unsecured creditors put it into Chapter 7 bankruptcy following accusations of accounting wrongdoing.

Wachovia spokeswoman Christy Phillips-Brown said that the bank would seek to have the lawsuit dismissed.

"As we've said before, Wachovia is a victim in the Le Nature's fraud as are a number of other companies," she said.

The lawsuit also names BDO Seidman LLP, which was Le Nature's outside auditor, and two Le Nature's executives as defendants.

"Contrary to the allegations in the complaint, BDO Seidman was one of many victims of a collusive fraud at Le Nature's," the auditing firm said. "We intend to defend ourselves vigorously against these charges."

The complaint, filed in U.S. District Court in Manhattan, says that Le Nature's had reported net sales of more than $275 million in 2005, but a court-appointed custodian found that the actual figure was only $32 million.

According to the complaint, the beverage maker borrowed the $285 million in a loan administered by Wachovia on or about Sept. 1, 2006. Wachovia, which had handled Le Nature's major financial undertakings for many years, underwrote the loan and syndicated it to an array of banks and other investors, the lawsuit says.

"Wachovia knew that, had the real situation at Le Nature's been revealed, it would have been unable to syndicate the September 2006 loan," the lawsuit says. "But Wachovia's motivation to hide the true facts, and to structure, fund and syndicate the credit facility was strong."

The lawsuit says Wachovia had "become a trusted adviser and confidant to the company and its executives" and had secured tens of millions of dollars in fees by structuring and underwriting its bank facilities and securities issuances.

"Together with Le Nature's' management, Wachovia also engaged in extensive efforts, over several years, to sell the company," the lawsuit says.

The complaint says that plaintiffs in the case own more than $165 million in debt that was part of the loan agreement.