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Coca-Cola faces class-action

Issue: 5/9/05
Atlanta Business Chronicle
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A California law firm has filed a suit in federal court in Atlanta seeking class action, alleging Coke, some of its officers and some of its directors "made false and misleading statements regarding Coke's business and prospects."

San Diego-based Lerach Coughlin Stoia Geller Rudman & Robbins LLP said it filed the suit on behalf of people who bought The Coca-Cola Co. (NYSE: KO) stock between Jan. 30, 2003 and Sept. 15, 2004.

According to the suit: "The true facts, which were known to defendants but concealed from the investing public, were as follows: (i) Coke's business strategy was flawed and its business model was not working; (ii) Coke's relationships with its key bottlers were impaired and harming Coke's economic performance; and (iii) as a result of the above, Coke's earnings going forward would be diminished."

On Sept. 15, 2004, Atlanta-based Coca-Cola revealed that its second half 2004 financial results would be below forecasted levels. Coca-Cola Co.'s profit grew 12 percent in 2004, while revenue was nearly flat and worldwide case volume grew only 2 percent.

Coca-Cola recently accepted a cease-and-desist order in a settlement with the federal government in its investigation of Coke's alleged channel stuffing in Japan between 1997 and 1999. The reforms included the creation of an ethics and compliance office, but Coca-Cola did not have to pay any fines.

The settlement ended an investigation by the Securities and Exchange Commission.

In late January 2004, three former Coca-Cola finance officials told federal investigators that they saw an overstatement of financial results due to shipping excessive beverage concentrate to bottlers in Japan.

Coca-Cola also reported in January 2004 that the federal government first began an investigation of the company after a former employee, Matthew Whitley, filed suits against Coca-Cola accusing Coke of rigging a marketing test by Burger King in 2000, overstating revenue and profit, using slush funds to hide losses on the company's failed computerized fountain drink dispensing system, selling frozen drinks that contained metal residue and discriminating against African-American and Hispanic employees.

In October 2003, Whitley agreed to settle with Coca-Cola for $100,000, a $140,000 severance package and his attorney's fees of $300,000. The Department of Justice has since closed the investigation it began after Whitley's allegations.

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