Coca-Cola has agreed to pay $137.5 million to settle a shareholder lawsuit that claimed the world’s largest soft-drink maker artificially inflated sales to boost its stock price, according to court documents. The lawsuit, filed in federal court in October 2000, claimed that in 1999 Coca-Cola forced some bottlers to purchase hundreds of millions of dollars of unnecessary beverage concentrate in an effort to make its sales seem higher.
Bottlers use the beverage concentrate to make soft drinks. Institutional investors, led by Carpenters Health & Welfare Fund of Philadelphia & Vicinity, said the practice, known as “channel stuffing”, artificially inflated Coca-Cola’s results and gave investors a false picture of the company’s health. The investors claimed that Coca-Cola had failed to disclose material facts about its business and these omissions and misrepresentations harmed investors.
Coca-Cola agreed to the settlement on June 26th, and it submitted to the court on July 3rd. The settlement applies to anyone who acquired Coca-Cola common stock from October 21, 1999, through March 6, 2000, according to the settlement agreement.
In 2005, Coca-Cola settled a similar issue over the sale of excess beverage concentrate to bottlers in Japan between 1997 and 1999. “Coca-Cola misled investors by failing to disclose end-of-period practices that impacted the company’s likely future operating results,” according to a statement issued by the U.S. Securities and Exchange Commission at the time. Coca-Cola didn’t pay a fine in that settlement but agreed to cease and desist from future securities violations and maintain tight internal controls on sales to bottlers and customers. The U.S. Department of Justice closed an investigation without filing charges against the company.