Venture Capital

Hampton Creek Faces U.S. Criminal Probe Over Mayo Buybacks

  • Startup campaign draws Justice Department fraud investigation
  • Maker of Just Mayo confirmed last week SEC also scrutinizing

Justice Dept. Opens Hampton Creek Criminal Investigation

The U.S. Justice Department has opened a criminal investigation into whether Hampton Creek Inc. committed fraud when it bought its own vegan mayonnaise from stores, according to people familiar with the matter. The food technology startup has already drawn a regulatory inquiry over allegedly improper purchases.

Federal investigators reached out to former Hampton Creek contractors this week to discuss the undercover buyback campaign allegedly conducted by Josh Tetricks’s San Francisco startup, one of the people familiar with the situation said. The criminal investigation is in its early stages, and it’s unclear whether the matter will lead to charges or penalties, another person said.

Josh Tetrick

Photographer: David Paul Morris/Bloomberg

Tetrick, the co-founder and chief executive officer of Hampton Creek, wrote in an e-mailed response to a question about the probe: “We have no reason to believe this is true.” The company declined to elaborate. Peter Carr, a spokesman for the Justice Department, declined to comment.

Bloomberg first reported early this month that Hampton Creek bought jars of its own vegan mayonnaise products from supermarkets across the U.S. The Securities and Exchange Commission is scrutinizing whether Hampton Creek improperly recognized revenue from the campaign to buy jars of Just Mayo, Bloomberg reported last week. The company confirmed the SEC inquiry.

The U.S. officials are examining whether the buyback program violated fraud and securities statutes by making the startup look more successful to prospective investors than it actually was, the people said. Tetrick has said the self-purchases accounted for less than 0.12 percent of sales and were primarily for quality assurance. The scrutiny comes as Hampton Creek engages in fundraising efforts aimed at boosting the value of the company to more than $1 billion, people familiar with the matter have said.

The Justice Department and the SEC routinely target the same conduct, but only the former has authority to bring criminal charges. The Justice Department has more power than the SEC to compel companies and individuals to turn over documents or testify because it can use a grand jury to collect evidence. If outside investors were misled about the company’s revenues, the Justice Department could bring a case under wire and mail fraud statutes, said Michael O’Leary, a former prosecutor now at Holland & Hart LLP in Washington who isn’t involved in the case.

Since its early days, Hampton Creek has employed contractors across the country to do in-store demos and evangelize the company’s message that it’s the cheaper, healthier and more sustainable alternative to mainstream brands, such as Hellmann’s. Five former workers who spoke to Bloomberg said the job also included purchasing the company’s own products at U.S. supermarkets and that the assignments were separate from quality checks at stores. Hampton Creek has said it hoped the buyback program would give its products “a little momentum out of the gate.”

Hampton Creek has raised more than $220 million since it started in 2011, Tetrick told employees this month, according to a person in attendance. He also said at the meeting that he expects to raise another round of financing by early next month that will value the company at $1.1 billion, a person who attended the meeting told Bloomberg. The company’s backers include Silicon Valley venture capital firms Founders Fund and Khosla Ventures, as well as Li Ka-shing’s Horizons Ventures, Inc. CEO Marc Benioff and Facebook Inc. co-founder Eduardo Saverin.

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