A would-be unicorn has egg on its face.
Bloomberg reports that the Securities and Exchange Commission is looking into whether vegan foods startup Hampton Creek falsified revenue by purchasing its own products with company money. The preliminary inquiry is not yet a full-fledged investigation.
The news comes just days after the internal announcement of a funding round in progress that would value the vegan foods startup at over $1 billion.
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Under scrutiny is a program that used company money to buy Hampton’s flagship Just Mayo product from stores. The program was first reported by Bloomberg earlier this month. At that time, the company insisted the program was for quality assurance purposes, though Bloomberg found that the large-scale buyback program was separate from a quality control initiative.
A representative also admitted to Bloomberg that “we also thought it might give us a little momentum out of the gate,” and emails showed executives directing buyers to not wear company apparel during the “undercover” operation. Much of the purchased product reportedly ended up in the garbage.
Just Mayo is Hampton Creek’s highest-profile product, a mayonnaise substitute that replaces eggs with pea protein and other plant-based ingredients. It was the first major salvo in what Hampton Creek has pitched as a campaign to introduce plant-based alternatives to a broad array of common grocery items. The company also currently produces salad dressings and a cookie dough that replaces eggs in part with sorghum flour, and has additional plans for products including eggless cake mixes and scrambled-egg replacements.
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Just Mayo is pitched as a mass-market product, rather than targeting the health-food or vegan markets, and is carried by major grocers including Whole Foods, Kroger, Safeway, and Target. In 2014, Unilever sued Hampton Creek, alleging unfair competition in the description of the eggless product as mayonnaise. The suit was later dropped.
The buyback revelations and SEC investigation could threaten the funding round in progress, which CEO Josh Tetrick reportedly said at the time “could happen, really, any time in the next 48 hours or the next 21 days.” The internal purchases may have distorted sales figures and demand forecasting, changing the company’s investment profile. According to Bloomberg’s sources, the funding meeting included employees questioning Tetrick about the buyback program.