To Probe Marketing and Accounting Fraud at Fountain Division

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CHICAGO ( -- Coca-Cola Co. and one of its fountain equipment suppliers said the government has launched an official investigation on accounting and marketing fraud following an informal seven-month inquiry by the U.S. attorney's office in Atlanta.

Under a formal inquiry, the Securities and Exchange Commission could seek records and interviews with current and former employees of Atlanta-based Coca-Cola and Lancer Corp., a San Antonio, Texas-based fountain-equipment supplier.

Wrongful termination lawsuit
The earlier informal review stemmed from allegations made last May in a wrongful termination lawsuit by a former Coca-Cola employee, Matthew Whitley, a finance manager and internal auditor for the beverage giant's fountain division.

Mr. Whitley claimed he was fired for telling executives about a $2 billion accounting fraud he believed occurred in the company. He alleged that the two companies falsely propped up sales tests of a new fountain dispenser called iFountain to spur sales of the unit and that Coca-Cola had not reported for two years a so-called slush fund and false financial documents to cover up the failure of the dispenser.

Outside investigation
Coca-Cola ordered an outside investigation of his claims and later admitted that fountain unit executives rigged a market test of Frozen Coke at client Burger King Corp. The investigation cleared allegations of accounting fraud on lack of evidence, but the company said it would cooperate with the SEC inquiry launched in June.

Coca-Cola wrote down $13 million in charges for overvaluing equipment and materials related to the fountain system.

In October, Mr. Whitley and Coca-Cola settled his lawsuit out of court for $540,000.

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