Coke Settles with SEC

ATLANTA – The Justice Department has abruptly ended, without taking action, its 2-year-old criminal investigation of allegations raised in a whistleblower lawsuit of accounting irregularities at Coca-Cola Co., the world’s biggest soft drink maker said Monday.

The ending coincided with the company’s release of its first-quarter earnings report yesterday, in which the company reported that profits were down 11 percent — a figure that actually beat analyst expectations and raised share prices.

Separately, the Atlanta-based company said it has reached a settlement with the Securities and Exchange Commission over its business practices in Japan.

The end to the investigations closes an embarrassing chapter for the company that was sparked by a 2003 lawsuit by former Coke manager Matthew Whitley. He claimed he was fired for reporting allegations of fraud to top management. He could not be reached for comment Monday.

It was not clear why the Justice Department dropped its investigation, which included grand jury testimony from several Coke executives. A spokesman for the U.S. Attorney’s Office declined to comment.

Among other things, Whitley alleged that Coke 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.

Another facet of the investigation involved Coke’s relationship with Lancer Corp. of San Antonio. Whitley claimed Coke and Lancer hid a slush fund by filing false financial information to the SEC about Lancer’s sales of equipment to Coke.

Coke denied most of the allegations, but admitted that some of its officials undermined the Burger King marketing test. It later settled Whitley’s lawsuit for $ 540,000.

In a memo to employees Monday, Chief Executive Neville Isdell said that under the settlement with the SEC, Coke has agreed to take unspecified remedial actions in the areas of corporate compliance and disclosure. He said the settlement does not include a fine or penalty and added that Coke does not admit or deny wrongdoing.

According to an order issued Monday, the SEC 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.

The practice, known as “channel stuffing,” helped Coca-Cola meet analysts’ earnings estimates.