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Lawsuit Against Coca-Cola: The Real Thing?

Aired May 19, 2003 - 20:13   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BILL HEMMER, CNN ANCHOR: CNN has learned a lawsuit filed late today against Coca-Cola accuses the world's biggest soft drink maker of fraud and covering up problems with some of its products. One of the accusations is that Coke put together a fraudulent marketing report to get $60 million in business from a fast food restaurant chain.
This statement from Coca-Cola tonight -- and quoting now -- "this disgruntled former employee has made a number of allegations accompanied by an ultimatum that the company pay him about $45 million or he would go to the media. We informed his counsel that the audit committee of the board of directors has commenced an independent investigation engaging the law firm of Gibson, Dunn and Crutcher and the audit firm of Deloitte and Touche. Until the investigation is complete we cannot have a basis on which to these respond to these allegations. Therefore, we will not even comment until the process is completed."

Tonight, from the CNN Center in our newsroom in Atlanta to talk about the charges, Matthew Whitley, the plaintiff, and his attorney, Marc Garber, here this evening.

Good evening, gentlemen.

Marc, you're the attorney. Why bring this suit now and what's your allegation?

MARC GARBER, PLAINTIFF'S ATTORNEY: The allegation is this, Bill: that my client, Mr. Whitley, in an effort to do what any good employee would do, inform management of any number of very serious problems in their company, the most important, I think, is the fact that the company, in January of this year, knew that one of its products had metal residue in the drink, frozen carbonated beverages. Mr. Whitley's goal very simply: inform management and make Coke better company. Coke shot the messenger.

HEMMER: How so?

GARBER: The -- one week after Mr. Whitley told -- excuse me -- told senior management about the allegations that you've raised and provided hard information, he received the worst performance review of his career. Six weeks later, he was laid off as part of Coke's company-wide layoff plans. His future with Coke, which some one in his family has been an employee for about 75 years, was destroyed, ruined, because Coke does not want bad information about its products, does not want bad information about profits.

HEMMER: Matt, let's go back to the allegations. You're the one bringing them forward. What did you find about this metal in the soft drink and how prevalent was it in your accusation?

GARBER: Bill, let me address that for Mr. Whitley...

HEMMER: Can I hear from -- can I hear from your client?

GARBER: Well, let me say this...

HEMMER: I'd appreciate it if I could. That's why we brought him on tonight. How about it, Matthew?

GARBER: I understand. On -- on this issue, I think it's appropriate for me to address the issue on something that will be in litigation,not like -- unlike what Gloria Allred said in the last segment.

The issue on metal residue was this. That early in January, the company was confronted with a product that was not selling. It needed to do something with it. One of the issues presented was that there was metal residue in the drink, a Planet Java promotion. And Mr. Whitley, to his credit, brought it to the attention of senior management and they still have not take than product off the market.

HEMMER: Matthew, what about it? Did you find metal shavings in the soft drink?

GARBER: Mr. Whitley -- that wasn't his job. He was an auditor.

HEMMER: I'm not going to get very far. You're not going to let me, are you, Marc?

GARBER: If you ask the right questions...

(CROSSTALK)

HEMMER: Listen, Matthew, what about it? I think I'm asking all the right questions. It's your suit, not mine.

Matthew, do you believe you're bringing this suit right now or is it believed by the company that you were laid off, essentially terminated from your job, and that's the reason for the suit?

MATTHEW WHITLEY, PLAINTIFF: No, I really see it that way. From my perspective, it was -- was target.

HEMMER: You were a target because of what?

WHITLEY: Over -- recently, I had raised many issues to senior management not just the issue with the product quality, but several other issues, as well. And shortly after I raised the issue I was basically blacked out. I was not allowed to -- there was no more communication with me.

HEMMER: Nothing from management. What else do you -- in this suit, do you claim the Coca-Cola has done?

GARBER: Fundamentally Bill -- I'm sorry to jump in -- but fundamentally, what we have is a situation where the company has, instead of addressing the problems back in early February, when Mr. Whitley brought them up, they sat on their hands. They had an earnings report coming out one week after Mr. Whitley brought this information to senior management.

HEMMER: Mark, we got a statement from -- we got a statement from the company now. I want to get to it, show it to our viewers again. We showed you one. Here's another one.

"One has to wonder what is motivating him" -- as in Matthew -- Matthew Whitley -- "if he is unwilling to wait for the findings of these independent investigations. Maybe he's concerned that the facts will not support his allegations and will undercut his outrageous demand for $44.4 millions dollars."

Two points in there. Matthew, it is said by the company, they were conducting their own internal audit and you reached and agreement not to bring a suit until the company responded. Did you breech that agreement?

WHITLEY: No, sir, I did not.

GARBER: There was no written agreement, Bill. What we found out...

HEMMER: Was there a verbal agreement?

GARBER: There were some preliminary discussions about how we wanted to resolve this matter. The Coca-Cola Company, as you would expect, continued to make -- what I would contend are misstatements and misrepresentations about what their intentions were in order to buy time to so they could spin their way out of this problem.

And you see that now. You've heard "disgruntled employee." That is -- that's like, you know, the last great vestige you can say about somebody who's nailed you to the wall

HEMMER: Marc Garber is attorney for Matthew Whitley, a former Coke employee. The suit has been brought out. The news just breaking here.

I want to correct myself on one point. I said an internal audit. That's an independent audit that the company says that they are now going through to investigate the claim.

The suit is $44.5 million. Thanks, gentleman, to both of you for coming on tonight. I want to bring in Andy Serwer and talk about what kind of impact a lawsuit like this could have on the cola giant.

Good evening to you.

ANDY SERWER, "FORTUNE" EDITOR-IN-CHIEF: Good evening to you, Bill. HEMMER: Nice to see you at this hour. What do you make of this?

SERWER: Absolutely.

Well, first of all, I think people should realize, this is not an Enron situation. This lawsuit is not going to blow Coca-Cola out of the water. It alleges some accounting improprieties. Also this product contamination. Also it speaks to racism in the company as well, Bill, and it talks, of course, about a cover-up and firing a whistleblower.

Mr. Garber accentuated the product contamination but actually, that's a very small page -- part of this 100-page suit that I've been going through here for the last couple of hours. Most of it has to do with fraud.

I want to talk about the contamination, quickly. A very small part of the business, frozen uncarbonated beverages from the Planet Java line leaves a metal residue in the drinks that may or may not be potentially harmful. So, you know, just for everyone out there, it's not -- they're not even alleging that this is widespread in coke's products. This is a small thing

HEMMER: Is there something that arrives at the $44.5 million figure?

SERWER: The 44 is derived from a formula whereby they're talking about the malfeasance that they alleged and this is how they should be renumerated.

HEMMER: Yes.

SERWER: The fraud itself that they talk about is large and it remains to be seen, you know, how valid their charges are. I mean, they're talking about $750 million of what are called marketing allowances. And they're saying they're really rebates.

Let me explain in English what that really means, though. Here's how it works: you've got a small snack shop that wants a soda fountain machine and they call Pepsi and they call Coke in, right? And the Coke guy goes, Well, we can give it to you for a thousand bucks a year. And the guys says, Well, Pepsi can give it to me for 500. The Coke guy goes, well I can give you a marketing allowance -- in other words, I can give you money back and you can put some sign up that says, Joe's snack bar proudly serves Coca-Cola products, right?

Now sometimes people pocket that money instead of buying signs. Sometimes they don't. It's a very gray area. And what this suit says is that the Coca-Cola company did not recognize this correctly, violated GAP, generally accepted accounting principles. It's really difficult to tell from this whether they did or not -- excuse me. And it will take a lot of figuring out for Coke and its lawyers to figure out whether the suit has merit.

(CROSSTALK)

HEMMER: Good luck getting through your 100 pages, by the way.

SERWER: Yes. I'm going to look through it.

HEMMER: Thank you, Andy. See you in the morning, all right?

SERWER: (UNINTELLIGIBLE)

HEMMER: OK.

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