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Coca-Cola Under Federal Investigation on Ex-Worker Allegations

ATLANTA  � Coca-Cola Co.  said Friday U.S. prosecutors were investigating a former employee's allegations that the world's biggest soft drink maker inflated earnings, sold drinks containing metal residue and rigged a marketing test.

"The company will cooperate with the inquiry" by the U.S. Attorney's Office for the Northern District of Georgia in Atlanta, Coca-Cola said in a one-paragraph statement. A Coca-Cola spokeswoman declined to provide further details.

Justice Department spokesman would not comment on whether it was probing the Atlanta-based soft drink maker.

Investors, however, reacted with muted interest. Coke shares dipped 10 cents to close at $43.91 on the New York Stock Exchange. The company's main rival, PepsiCo Inc., rose 47 cents, or 1 percent, to close at $47.42 on the NYSE.

"I think most people think this is an isolated event," said UBS Warburg analyst Caroline Levy. "If it turns out to be something more serious than we currently know about, that's different.

The latest federal probe comes less than a month after the Securities and Exchange Commission requested documents from Coca-Cola as part of an informal inquiry into allegations by Matthew Whitley, a former finance executive in the company's food services division.

Whitley, fired along with hundreds of others in March as Coca-Cola restructured its North American operations, has filed a $44.4 million wrongful-dismissal lawsuit against his former employer. His lawyer was not available for comment Friday.

The lawsuit alleges, among other things, that Coke had improperly inflated its earnings and that its managers knew that malfunctioning frozen-beverage machines were allowing metal residue to enter some frozen drinks.

Coca-Cola has denied most of Whitley's claims, including his allegations of product contamination, as baseless. Last month, the company said it had received no complaints of metal contamination in its drinks.

But it did confirm the whistleblower's accusation that Coke employees rigged a marketing test for its Frozen Coke product three years ago in a bid to win business with Burger King Corp. Coca-Cola has apologized to the Miami-based fast food chain.

On Friday, Burger King, which has conducted its own investigation of the incident, announced that it was phasing out Frozen Coke and other frozen carbonated drinks in its U.S. restaurants.

"Despite best efforts, the performance of these products has been disappointing," Burger King Chief Executive Brad Blum said in a statement sent to the company's restaurant operators Thursday.

Federal officials' interest in Coca-Cola's marketing and accounting practices comes at a time when U.S. corporations are under pressure from regulators and investors to become more honest and financially transparent.

It also is a setback to Coca-Cola Chief Executive Doug Daft's efforts to improve the soft drink maker's image, which was tarnished in 1999 by a product contamination scare in Europe and a race-discrimination lawsuit in the United States.

At that time, the soft drink maker also was being investigated by anti-trust regulators in some of its more than 200 markets around the world.

Coca-Cola is scheduled to release second quarter results next week. Last month, it said it would take a $9 million pretax charge in the quarter as a result of accounting problems found during an audit triggered by Whitley's lawsuit.

http://www.foxnews.com/story/0,2933,91651,00.html

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