The Justice Department has abruptly ended without taking action its nearly two-year-old criminal investigation of allegations raised in a whistleblower lawsuit of accounting irregularities at The Coca-Cola Co., the world's biggest soft drink maker said Monday.
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 dual investigations closes an embarrassing chapter for the company that was sparked by a 2003 lawsuit filed by former Coke manager Matthew Whitley, who claimed he was fired in retaliation for reporting to senior management allegations of fraud and accounting mistakes.
It was not clear why the Justice Department dropped its investigation, which included grand jury testimony from several current and former Coke executives. Patrick Crosby, a spokesman for the U.S. Attorney's office in Atlanta, declined to comment. Coke spokesman Ben Deutsch said only that the company received a letter Monday from the Justice Department saying it was terminating its probe.
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 Justice Department investigation involved Coke's relationship with Lancer Corp. of San Antonio. Whitley claimed in his lawsuit that 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 in the memo that the SEC settlement does not include a monetary 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.
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 Coke'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, known as "channel stuffing," contributed approximately $0.01 to $0.02 to Coca-Cola's quarterly earnings per share and was the difference in 8 out of the 12 quarters from 1997 through 1999 between Coca-Cola meeting and missing analysts' earnings estimates.
Isdell said he is glad the dual investigations are over.
"We continue to expect all of our operations around the world to adhere to the highest ethical standards," Isdell said. "The measures identified in this settlement and those we have taken over the past few years are an important step forward in ensuring our systems continually improve. That is an obligation we all share that requires constant vigilance."