Coca-Cola accused of inflating profits
By Steve Matthews
Bloomberg News Service
ATLANTA — Coca-Cola Co., the world's largest soft-drink maker, said federal prosecutors are investigating a former executive's charges that it inflated sales and profits.
The U.S. attorney's office in Atlanta has started a probe into allegations by Matthew Whitley, former director of finance for the soda-fountain division, the company said in a statement. Coca-Cola last month disclosed a Securities and Exchange Commission inquiry.
Whitley, in two lawsuits saying he was wrongfully fired, alleges the fountain division falsified sales and gross profits by more than $2 billion and concealed failures with new products. Coca-Cola acknowledged last month that employees rigged a test for a "Frozen Coke" drink at Burger King Corp. three years ago, while disputing the other allegations.
"It is very unusual for the U.S. attorney's office to initiate an investigation based upon unproven allegations in a civil lawsuit," said Craig Gillen, a former assistant U.S. attorney and criminal defense lawyer in Atlanta.
Whitley filed his lawsuits after seeking $44 million from the Atlanta-based company after his $175,000-a-year position was eliminated as part of a dismissal of 1,000 workers. Coca-Cola, whose fountain division sells raw syrup used by bars, restaurants and other outlets, filed motions yesterday to dismiss the lawsuits.
Coca-Cola spokeswoman Sonya Soutus would not comment beyond the statement, which says the company is cooperating. U.S. attorney spokesman Patrick Crosby would not comment.
Shares of Coca-Cola rose 10 cents to $43.91 at 4:16 p.m. in New York Stock Exchange composite trading. The stock has dropped 17 percent in the past year.
An internal investigation by an independent law firm found no basis for Whitley's statements that the fountain division, which accounts for a third of U.S. sales, improperly reported $750 million in annual expenses for three years as marketing allowances rather than rebates, the company said last month. Coca-Cola stands by the assessment, Soutus said.
The payments to customers shouldn't have been included in reported sales because not all the money went for advertising, the lawsuits said. In 2001, Coca-Cola reclassified its financial statements to lower sales in response to a change in accounting rules for coupons and promotions.
Coca-Cola workers were disciplined in 2001 for giving a consultant $10,000 in 2000 to take children to buy meals with Frozen Coke at Burger King restaurants in Richmond, Va., to make the product appear successful.
Burger King is ending sales of frozen carbonated beverages including Frozen Coke in the United States because results have been disappointing. Brad Blum, Burger King chief executive, notified franchisees last night, spokesman Rob Doughty said.
Whitley said Coca-Cola conspired with suppliers of fountain-drink dispensers, including Lancer Corp. of San Antonio, to overcharge the company for traditional dispensers and undercharge for the iFountain computerized dispensers to spur demand for the new product that wasn't selling well.
The lawsuits also said the company fraudulently inflated revenue numbers by getting customers to buy more syrup than they needed at the end of the fiscal quarter.
