US federal prosecutors have begun an investigation into fraud allegations at Coca-Cola, the world’s largest soft drinks company.
In a brief statement, the Atlanta-based firm said an inquiry had been launched by the US attorney’s office for the northern district of Georgia. It stems from claims by a former manager at Coca-Cola who alleged that it routinely inflated sales through improper accounting and fraudulent marketing.
The investigation parallels an informal one already under way for the financial watchdog, the securities and exchange commission.
The statement from Coca-Cola simply said it would “cooperate with the inquiry”.
Matthew Whitley, a former finance chief in Coca-Cola’s fountain division, which supplies fast food restaurants and bars, sued the company in May for wrongful dismissal. He claims he was fired after taking allegations to senior executives that the soft drinks firm had engaged in a $2bn (£1.2bn) accounting fraud.
He accused the company of improperly accounting for marketing allowances to customers and inflating revenues at the end of each quarter by ordering fully loaded lorries to drive “two feet” from the loading dock in order to book phantom deliveries.
In a separate allegation he said a manager had hired an outside consultant to rig the results of a Frozen Coke promotion in Burger King. As a result of the promotion in 2000, Burger King backed a $65m national roll-out of the drink, which subsequently flopped. He described a “culture of dishonesty” at the firm.
Coca-Cola has described Mr Whitley as a “disgruntled former employee” who had demanded $44.4m to keep quiet. He lost his post in March, the company said, as part of a reorganisation that eliminated 1,000 jobs.
The firm’s audit committee hired an outside law firm and auditors Deloitte & Touche to investigate the allegations.
In June, Coca-Cola admitted that some employees had improperly influenced the results of the test of Frozen Coke at Burger King. The company had been aware of the rigged test since 2001, but did not tell Burger King until after Mr Whitley made the allegations public.
The disclosure drew a stinging rebuke from Burger King, which criticised the “unacceptable” behaviour of Coca-Cola. “We expect and demand the highest standards from all our vendor relationships,” chief executive Brad Blum said.
According to Mr Whitley’s lawsuit, the outside consultant was used to spend up to $10,000 on meals at Burger Kings in the pilot area of Richmond, Virginia, to boost demand for Frozen Coke.
Mr Whitley, who had worked at Coca-Cola since 1992, also claimed that more than 80,000 of the company’s frozen drink machines nationwide are defective, and tainting slush drinks with metal residue.
The audit committee last month said it had uncovered about $9m of wrongful accounting related to fountain dispenser equipment. But it had not found evidence to support Mr Whitley’s broader allegations and vowed to defend itself “vigorously” in the courts.
Coca-Cola shares were 49 cents lower at $43.52 in early trading yesterday.
Steven Heyer, Coca-Cola’s chief operating officer, apologised to Burger King last month. He said the scam was “wrong and inconsistent with the values of the company”.
