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Board of Hampton Creek said to be investigating buyback allegations

Posted By on October 22, 2016 in Written Content | 0 comments

Board of Hampton Creek said to be investigating buyback allegations

The board of Hampton Creek has hired one of the Big Four accounting firms to investigate claims in aBloomberg 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 familiarwiththe situation says the board was unaware of the allegedscheme until contacted by Bloombergs 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 wrongdoingcurrently 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 reportedthatthe SECand the Justice Department had launched probes of Hampton Creek for possible securities violations and criminal fraud,followingits report that Hampton Creek had hired contractors to purchaseJust Mayo from grocers shelves.

Reporter Olivia Zaleski said in the piece that Bloomberg was shown 250 receipts, expense reports, cash advances and e-mails from these contractorsthat collectively showed buybacks at Safeway,Kroger, Costco, Walmart, Target, and Whole Foods.

Tetrick told Bloombergthat 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 anyones guess, but a follow-on story in Bloomberg didnt reflect well on Hampton Creeks board, which was reportedlywarned by the successful entrepreneur and investor Ali Partovi that the company might have a truthinessissue, 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 hasmade us better in numerous ways, Partovi left out of concern that Hampton Creek wasmisleading 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 companysoutside board membersfromKhosla Ventures and Horizons Ventures that Tetrick was misrepresenting the companys finances. It also reported that after reviewing documents provided by the company and speaking with both Partovi and Tetrick, those board membersconcluded that no further action was warranted. In fact, the firms went on to co-lead the companys next funding, a $90 million C round.

Partovi declined to comment for this story, but our source close to the situation confirms Bloombergs report. This person also notes, as did Bloombergs 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 companysbuyback offer, our source didnt know.

This person also adds thatfraudwasntpart of that early conversation with Partovi, that Partovis concern, rather, was over aggressive revenue forecasts and that, pushed on whether Hampton Creek could grow into those numbers, Partovisaid they were not unachievable based on the pipeline of products that the company intended to bring to market.

Thecurrent investigation into Hampton Creek is the second launched by the board, our source says. Italso initiated an investigation into the startup in August of last year, after the Food and Drug Administrationsent Hampton Creeka warning letter,saying thatJust Mayo products weremisbranded because they didntmeet the definition and standard of identity for mayonnaise.

The issue was resolved after Hampton Creek agreed to make labeling changes.

Read more: https://techcrunch.com/2016/10/21/board-of-hampton-creek-said-to-be-investigating-buyback-allegations/