Coke Whitley Probe Ends

No action taken; SEC settlement reached

Published in CSP Daily News

ATLANTA -- The Coca-Cola Co. said Monday that the U.S. Department of Justice has decided to close its two-year-old investigation into allegations raised in a whistleblower lawsuit of accounting irregularities, said the Associated Press.

Separately, the Atlanta-based company said it has reached a settlement with the U.S. Securities & Exchange Commission (SEC) over its business practices in Japan.

We are pleased that today's settlement with the [SEC], and the decision by the Department of Justice to close its investigation, [image-nocss] mark an end to the U.S. government inquiries initiated in 2003, CEO Neville Isdell said in a statement.

In a memo to employees, Isdell said that under the settlement with the SEC, Coca-Cola has agreed to maintain certain measures that the company implemented prior to or during the last two years and to undertake additional remedial actions in the areas of corporate compliance and disclosure. He said in the memo that the SEC settlement does not include a monetary fine or penalty and Coca-Cola does not admit or deny wrongdoing.

Isdell also said that Coca-Cola has been informed that the Justice Department has ended its probe of the company without any action. The probe involved allegations raised in a 2003 lawsuit filed by former Coca-Cola manager Matthew Whitley, who claimed he was fired in retaliation for reporting to senior management allegations of fraud and accounting irregularities.

As reported in CSP Daily News, among other things, Whitley alleged that Coca-Cola rigged a marketing test at Burger King restaurants in 2000 and made false or misleading statements or omissions in connection with the reporting of sales volume. Coca-Cola denied most of the allegations, but admitted that some of its officials undermined the marketing test. It later settled Whitley's lawsuit for $540,000.

According to an order issued Monday from the SEC, the agency found that, at or near the end of each reporting period between 1997 and 1999, Coca-Cola implemented an undisclosed practice in Japan in which Japanese bottlers were offered extended credit terms to induce them to purchase quantities of beverage concentrate the bottlers otherwise would not have purchased until a following period.

Coca-Cola typically sells gallons of concentrate to its bottlers corresponding to its bottlers' sales of finished products to retailers. As a result, typically bottlers' concentrate inventory levels increase approximately in proportion to their sales of finished products to retailers; however, as a result of Coca-Cola's practice, from 1997 to 1999, its Japanese bottlers' concentrate inventory levels increased at a rate more than five times greater than that of finished product sales to retailers, the SEC said. That pulled forward sales from subsequent periods and made it likely that Coca-Cola's bottlers would purchase less concentrate in the later periods. The practice, called channel stuffing, contributed about 1 cent to 2 cents to Coca-Cola's quarterly earnings per share and was the difference in eight out of the 12 quarters from 1997 through 1999 between Coca-Cola meeting and missing analysts' earnings estimates.