The Coca-Cola Company said yesterday that federal prosecutors were investigating allegations raised in a former employee's lawsuit accusing the company of fraudulent marketing and accounting.
In a two-sentence statement, the company said that the investigation was being conducted by the office of the United States attorney for the Northern District of Georgia and that it would cooperate with the inquiry.
In a lawsuit filed in May, Matthew Whitley, a former Coke manager, asserted that Coca-Cola rigged a marketing test and artificially increased equipment sales. The lawsuit also asserted that the company's fountain division had engaged in $2 billion in accounting fraud, created slush funds and manipulated its inventories.
Citing Justice Department guidelines, Patrick Crosby, a spokesman for the United States attorney's office in Atlanta, would neither confirm nor deny reports of an investigation.
Marc N. Graber, Mr. Whitley's lawyer, said, however, that his client had received a subpoena from a federal grand jury.
"We are gratified that the Department of Justice and a federal grand jury have decided to look into these problems at Coca-Cola," he said.
Coke, which is based in Atlanta, acknowledged last month that some of its employees undermined a marketing test of Frozen Coke three years ago at Burger King restaurants in the Richmond, Va., area.
Coke's audit committee, asked to look into several of Mr. Whitley's accusations, also found that the fountain division had improperly valued some equipment. The company said it would take a $9 million pretax write-down to correct the valuation of the equipment.
The committee said it found no evidence to support the other allegations in the lawsuit, including a contention by Mr. Whitley that the fountain division improperly shifted $4 million of capital money to a fountain project last year.
The committee, whose members include the financier Warren E. Buffett and Robert L. Nardelli, Home Depot's chief executive, also said it had found no evidence to support accusations made by Mr. Whitley that Coke had discriminated against minorities or women.
News of the investigation did not have much of an effect on the company's stock. The stock barely budged all day, and closed at $43.91, down 10 cents a share.
"If there is a problem here, and that is far from clear, it's limited," said John D. Sicher, publisher of Beverage Digest, a trade publication. "Clearly, in the Richmond test there was a mistake made by one employee. But as far as the company goes, it is committed to doing business in a fair and honest and upfront fashion."
Coke officials have described Mr. Whitley as a disgruntled former employee who threatened to take his charges to the news media if he was not paid. In his lawsuit, Mr. Whitley is seeking $44.4 million in damages.
After Mr. Whitley filed an amended complaint on June 25, Coke issued a statement saying the action represented a "further attempt to extract an outrageous sum from the shareowners of the Coca-Cola Company."
Last month, Coke said that the Securities and Exchange Commission had issued an informal request for documents regarding Mr. Whitley's assertions.
Lawyers not connected with the case said it was possible the Justice Department might be investigating Mr. Whitley.
An 11-year employee of Coca-Cola, Mr. Whitley, 37, was laid off earlier this year as part of a reduction in the company's North American work force that eliminated 1,000 jobs. He was a finance director in the fountain division.
Lawyers for Coke filed papers in Fulton County Superior Court in Atlanta on Thursday seeking to dismiss Mr. Whitley's case.
In his lawsuit, Mr. Whitley asserts that three years ago members of Coke's Burger King account team persuaded Burger King, a big Coke customer, to run a three-week test of Coke's frozen carbonated beverages in the Richmond restaurants. Coke's marketing plan was to offer customers a coupon for a free frozen drink with the purchase of a value meal, in hopes of increasing traffic at Burger King and persuading the company to invest more heavily in the frozen beverages and extend the promotion nationally.
Mr. Whitley contends in the suit that when the tests appeared to be going poorly, Coke officials paid $10,000 to a Virginia man to take hundreds of children to Burger King to buy value meals.
Coke officials have not disputed the details of the Virginia promotion, and they said in June that the employees involved were disciplined in 2001. But the company denied Mr. Whitley's assertion that it used the beverage promotion to try to influence Burger King's thinking about expanding it.
In a letter sent last month, Steven J. Heyer, Coke's president, apologized to Bradley D. Blum, Burger King's chief executive, for the incident.
In a message sent to employees on Thursday and released to the public yesterday, Mr. Blum said that after "careful analysis," Burger King had decided to phase out Frozen Coke and other frozen carbonated beverages in Burger King's domestic restaurants.
"Despite best efforts, the performance of these products has been disappointing," he said in the message.
Dan Schafer, a Coke spokesman, said that Frozen Coke was introduced in 1970. Burger King began selling the product, which is a slushy drink, in 1997. Mr. Schafer said Frozen Coke was a "small business, with volume and profits that are not significant to our results."