The board of Hampton Creek has hired one of the Big Four accounting firms to investigate claims in a Bloomberg story that the San Francisco-based vegan food company executed on a campaign to buy back mass quantities of its eggless mayo product, Just Mayo.
A source familiar with the situation says the board was unaware of the alleged scheme until contacted by Bloomberg’s reporters this fall, and that if CEO Josh Tetrick and other managers were “buying back mayo solely for the purpose of juicing the numbers,” the board will be “livid.”
This source says the board has no evidence of wrongdoing currently but that an auditing firm is currently “looking at every f_cking receipt that the company has created.”
A spokesman for the board refused comment.
Tetrick also declined to comment for this story, though a source close to Tetrick insists that there is no board-initiated investigation ongoing or taking place imminently.
In August, Bloomberg reported that the SEC and the Justice Department had launched probes of Hampton Creek for possible securities violations and criminal fraud, following its report that Hampton Creek had hired contractors to purchase Just Mayo from grocer’s shelves.
Reporter Olivia Zaleski said in the piece that Bloomberg was “shown 250 receipts, expense reports, cash advances and e-mails” from these contractors that collectively showed buybacks at Safeway, Kroger, Costco, Walmart, Target, and Whole Foods.
Tetrick told Bloomberg that the buybacks were centered around quality control, but these same contractors said they were free to consume, distribute to friends, or discard the product rather than look for quality issues.
What happens next is anyone’s guess, but a follow-on story in Bloomberg didn’t reflect well on Hampton Creek’s board, which was reportedly warned by the successful entrepreneur and investor Ali Partovi that the company might have a truthiness issue, to steal from comic Stephen Colbert.
As has been widely reported, Partovi, an early investor in the company, joined the company roughly two years ago as its chief strategy officer, but left after just nine days on the job. Though Tetrick initially characterized the split as amicable, calling Partovi an “incredible person,” who has “made us better in numerous ways,” Partovi left out of concern that Hampton Creek was misleading investors and board members and risking potential fraud lawsuits, says Bloomberg.
The outlet says he talked with Tetrick directly about his concerns. He also warned the company’s outside board members from Khosla Ventures and Horizons Ventures that Tetrick was misrepresenting the company’s finances. It also reported that after reviewing documents provided by the company and speaking with both Partovi and Tetrick, those board members concluded that “no further action was warranted.” In fact, the firms went on to co-lead the company’s next funding, a $90 million C round.
Partovi declined to comment for this story, but our source close to the situation confirms Bloomberg’s report. This person also notes, as did Bloomberg’s story, that Partovi was given the chance to sell his stake back to Hampton Creek and opted not to do so. (He later sold his shares to Saleforce CEO Marc Benioff.) Asked if the board reviewed the company’s buyback offer, our source didn’t know.
This person also adds that fraud wasn’t part of that early conversation with Partovi, that Partovi’s concern, rather, was over aggressive revenue forecasts and that, pushed on whether Hampton Creek could grow into those numbers, Partovi said they were not unachievable based on the pipeline of products that the company intended to bring to market.
The current investigation into Hampton Creek is the second launched by the board, our source says. It also initiated an investigation into the startup in August of last year, after the Food and Drug Administration sent Hampton Creek a warning letter, saying that Just Mayo products were “misbranded” because they didn’t meet the definition and standard of identity for mayonnaise.
The issue was resolved after Hampton Creek agreed to make labeling changes.
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