Prosecutors Launch Coca-Cola Inquiry

Federal prosecutors have launched a criminal investigation and a grand jury probe into fraud allegations raised by a whistle-blower lawsuit against Coca-Cola Co.

The world’s largest soft drink company announced Friday that the U.S. attorney’s office was investigating. Also Friday, Burger King said it would phase out the sale of Frozen Coke at its fast-food restaurants and stop using Coke’s frozen carbonated beverage machines.

Among the allegations raised in the whistle-blower’s lawsuit was that Coke employees rigged a market test to inflate the popularity of Frozen Coke at Burger King outlets in Virginia. The whistle-blower also said some of Coke’s machines that make the frozen drinks were defective, a claim Coke denies.

Coke’s statement about the federal investigation did not provide any details but said the company would cooperate with the inquiry. The U.S. attorney’s office in Atlanta declined to comment.

A source familiar with the investigation said the whistle-blower, former Coke manager Matthew Whitley, has received a grand jury subpoena.

The Securities and Exchange Commission previously had initiated an informal probe of Coke.

The investigations were spurred by a lawsuit filed in May by Whitley, who claimed Coca-Cola rigged the marketing test and artificially boosted equipment sales. Whitley’s lawyer, Marc Garber, declined to comment.

Last month, Atlanta-based Coke admitted that some of its employees undermined a marketing test of Frozen Coke three years ago at Burger King restaurants in Virginia. Burger King is one of Coke’s largest customers.

A Coke auditing committee investigating allegations by Whitley also found that the company’s fountain division had improperly valued some equipment. The company will take a $9-million pretax write-down to correct the value.

The committee said it found no evidence supporting other allegations in the lawsuit, including Whitley’s claim that the division improperly shifted $4 million of capital funding to a fountain project last year.

Whitley also has alleged that more than 80,000 of the company’s frozen beverage machines nationwide are defective and tainting slush drinks with metal residue. Coke has denied that claim and filed a motion seeking dismissal of the lawsuits in state and federal courts.

Coke officials have said Whitley sued after the company refused his demand for $44.4 million. He lost his job as finance director for supply management at the fountain division in March amid a reorganization that eliminated 1,000 jobs.

Shares of Coke fell 10 cents to $43.91 on the New York Stock Exchange.