Feds Said to Close Inquiries into Hampton Creek’s Mayo Buybacks
The Securities and Exchange Commission and the Department of Justice have closed their inquiries into the business practices of San Francisco-based startup Hampton Creek, Fortune has learned.
Amr Razzak, Hampton Creek’s outside counsel with the law firm Skadden, confirmed the news. “The investigations are closed,” he said. “They are not going to take further action.”
Both the DOJ and SEC declined to comment. In an email to Fortune, the DOJ said, “As a matter of policy, the department generally neither confirms nor denies whether a matter is under investigation.”
The inquiries began last summer after Bloomberg reported that Hampton Creek employees and contractors “undertook a large-scale operation to buy back its own mayo, which made the product appear more popular than it really was.” Hampton Creek, which sells vegan products including its flagship egg-free Just Mayo condiment, told Bloomberg that the buybacks were primarily for quality-control purposes but that “we also thought it might give us a little momentum out of the gate.”
A follow up investigation from Bloomberg a month later reported that the company had expensed $1.4 million over five months in a category called “Inventory Consumed for Samples and Internal Testing” on its P&L—a category that reportedly included the buybacks—versus $1.9 million in sales over the same period.
The story also reported that investor Ali Partovi, who also had a very brief stint as the company’s full-time chief strategy officer, told the Hampton Creek board that CEO Josh Tetrick was misleading investors. The company’s big-name backers include Khosla Ventures, Founders Fund, Yahoo founder Jerry Yang, and Salesforce CEO and founder Marc Benioff.
But based on the findings from a report commissioned by Hampton Creek and conducted by forensic consultants from a big-four accounting firm, the company spent less than half a percent of sales on buying back product from 2013 to 2015, according to a source close to Hampton Creek. The source also said that the DOJ and SEC examined the report as part of their inquiries.
Hampton Creek is no stranger to controversy. The company battled with Hellmann’s maker Unilever and the Food and Drug Administration over whether it legally can call its egg-free spread mayo. In 2015 Business Insider published an investigation based on interviews with more than a half-dozen former Hampton Creek employees who alleged that the company “used shoddy science, or ignored science completely, stretched the truth when labeling samples, and created an uncomfortable and unsafe work environment, partly in in an effort to meet production deadlines.”