The SEC and the Department of Justice, which had launched preliminary inquiries into the vegan food company Hampton Creek last summer, have officially closed their inquiries, according to founder and CEO Josh Tetrick. He informed the company’s 160-plus employees of the status change this morning in an email that you can find below.
Tetrick called the news “the expected result by our leadership, board and investors.” Yet not everyone was so confident in a positive outcome after a two-part Bloomberg investigation attracted the government agencies’ attention. At the heart of Bloomberg’s findings was that Hampton Creek had executed on a campaign to buy back mass quantities of its eggless mayo product, Just Mayo, in an attempt to artificially inflate demand and, potentially, dupe investors.I
In reaction, the company’s board hired one of the Big Four accounting firms to investigate Bloomberg’s claims, which the board has said it had no knowledge of until contacted by Bloomberg’s reporters last fall.
A source close to the board told us at the time that if Tetrick and other managers were discovered to have been “buying back mayo solely for the purpose of juicing the numbers,” the board would be “livid.”
Whether they’re now patting Tetrick on the back instead isn’t yet clear. One of the company’s few board members didn’t respond to a request for comment earlier. A request for comment from Tetrick also went unanswered.
The SEC’s decision may not come as a complete surprise to industry watchers. The commission is largely expected to spend less time focused on Silicon Valley under President Trump’s administration. In fact, his pick as SEC chair, Jay Clayton, told lawmakers during a nomination hearing yesterday he would like to pare back regulations on startups. (Former SEC chair Mary Jo White felt rather differently about whether Silicon Valley needed more policing.)
But Hampton Creek has more to celebrate than the agencies’ closed inquiries. Perhaps even better news for the company are the conclusions of that Big Four accounting firm investigation, which were also just released.
While the audit has confirmed Hampton Creek’s buyback scheme, a source close to Hampton Creek also tells us it found the company’s buyback operation was far smaller than suggested in Bloomberg.
Specifically, according to Bloomberg’s sources — which reportedly included a former accounting employee — Hampton Creek used several expense categories on its profit and loss statements to disguise buybacks, including one line item called “Inventory Consumed for Samples and Internal Testing.”
Bloomberg further states that over a five-month period in 2014, Hampton Creek expensed about $1.4 million under the category, compared with $1.9 million of net sales in the period. That’s almost 75 percent of net sales. Per the newly released audit — which involved “hundreds of hours” of research into more than 60,000 transactions that included bank account data, transactions by current and former employees, and other legacy expense data, says our source — Hampton Creek expensed closer to two percent of its net sales on buybacks over a much longer period that began in 2014 and ended the following year.
It’s worth noting that Hampton Creek has never denied buying back its own product from stores. Instead, it said last summer that the buybacks were for the purposes of quality control.
Bloomberg’s sources argued that this narrative is false, with some former contractors telling Bloomberg they were asked to impersonate teachers and caterers in calls to local stores to order more Just Mayo. They were also reportedly told they could discard product they purchased.
In the end, consumers will have to decide for themselves what to think. The same goes for investors, some of who may well decide that Hampton Creek has been treated unfairly, and some of whom may continue to question the company’s tactics.
As investor Marc Andreessen tweeted last August in response to a Bloomberg report, “No comment on specific companies, but make no mistake: Buying your own product to inflate your reported revenue is fraud.”
You can find Tetrick’s note to employee below:
Several months ago, some inaccurate reporting led to SEC and DOJ Inquiries. As of today, both agencies closed their inquiries with no finding of wrongdoing by our company or any of our team members. It was the expected result by our leadership, board, and investors.
We should all be proud of the great work we’ve done in the last few months, from the opening of 3 labs to significant new discoveries to passing incumbents at some of the biggest retailers in the world.
We’ve got a lot of important work to do. I’m grateful to continue doing it with you.