Channel-stuffing refers to the practice of convincing clients to accept unwanted or early deliveries of a product. The method is used to pad revenue, and can help a firm meet quarterly financial targets. Rebates, extended payment terms and other incentives are often provided to clients in exchange for their complicity.
According to a Wall Street Journal report, the Securities and Exchange Commission and the US Attorney's Office are now investigating whether Coca-Cola is guilty of 'channel stuffing' in order to artificially boost profit forecast and sales. The report says that investigators have focused on Douglas Daft, Coca-Cola's chairman and chief executive who announced his plans to retire on 19 February.
The Atlanta-based soft drinks giant said that it was co-operating with the Securities and Exchange Commission and US Department of Justice. The investigation began after an ex-worker claimed that the company had overstated revenue and engaged in bogus transactions.
This is not the first time that Coca-Cola has been accused this practice. A shareholders lawsuit four years ago raised the issue of revenue-padding in Coca-Cola's Japanese market. Coca-Cola motioned to dismiss the lawsuit, which was amended and refiled last year.
"We have previously said that the claims raised in the (shareholder lawsuit), which was filed in October 2000, particularly with regard to our business in Japan, lack merit," Coca-Cola said in a recent statement.
Coke sales in Japan account for one-fifth, or about $1 billion (€802m), of its entire operating income per year.