

Coke investigates internal fraud allegations By Elliot Blair Smith, USA TODAY Coca-Cola (KO) said Tuesday that it is investigating allegations by a former internal auditor who says the soft-drink company engaged in massive fraud to inflate annual revenue by millions of dollars. The Coke board of directors audit committee, which includes investor Warren Buffett, ordered the probe by outside lawyers and accountants after executives repeatedly ignored the allegations by the fountain division's ex-director of finance. Buffett controls 8.1% of Coke stock. In a statement, Coke described "whistle-blower" Matthew Whitley as a "disgruntled former employee" who had demanded $44.4 million to remain quiet after being fired in March. Coke added, "Until the investigation is complete, we cannot have a basis on which to respond to these allegations." In an interview, Whitley said, "I repeatedly stood for what I thought were good, appropriate business practices." Late Monday, he filed an 85-page wrongful termination lawsuit in Fulton County, Ga., Superior Court alleging: •Phantom sales. Just before midnight at the end of each quarter in 2002, Whitley alleges, fully loaded Coke trucks "would be ordered to drive about two feet away from the loading dock" so the company could book "phantom" syrup sales as part of a scheme to inflate revenue by tens of millions of dollars. •Marketing fraud. Coke allegedly manipulated a test-market rollout of "Frozen Coke" at several Burger King stores in Richmond, Va., in early 2000 by paying for hundreds of children's "value meals" that featured the frozen soft drink. Based on the manipulated test data, the lawsuit alleges, Burger King endorsed a $65 million nationwide rollout of "Frozen Coke" that later failed. The lawsuit says Coke director Peter Ueberroth became "extremely angry" about the alleged deception when it was discovered in a routine internal audit. Ueberroth, who heads the board's audit committee, declined to comment. A Burger King spokeswoman called the lawsuit an "internal" matter for Coke. •Slush fund. Coke allegedly conspired with equipment vendor Lancer in a complicated scheme of fraudulent bookings to create a "slush fund" to disguise the commercial failure of a new dispenser. According to the lawsuit, Lancer's auditor, KPMG, threatened to alert the Securities and Exchange Commission about the fund. But Coke created false paperwork to cover Lancer's trail. A Lancer spokesman said the company's financial reporting was "proper and correct." KPMG declined to comment. The U.S. attorney's office in Atlanta had no comment.