Search
hampton creek just mayo
Courtesy of Hampton Creek

Hampton Creek Faces SEC Inquiry Over Buying Its Own Product

Aug 20, 2016

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.

Get Data Sheet, Fortune’s technology newsletter.

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.

For more on food innovation, watch our video:

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.

All products and services featured are based solely on editorial selection. FORTUNE may receive compensation for some links to products and services on this website.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions