Food tech start-up probe highlights channel stuffing concerns

September 12, 2016

All companies across all industry sectors must ensure that channel stuffing does not take place within their operations. This is particularly important since the practice was classified as a criminal offence in the United States. Regulators are cracking down on those firms that violate regulations initiated by the Securities and Exchange Commission (SEC), with some cases even being presented to the United States Department of Justice (DOJ), which is able to impose criminal charges, penalties and fees.

San Francisco-based start-up Hampton Creek is the latest organisation to find itself subject to an investigation by the DOJ to determine whether statutes on fraud and securities have been violated. According to reports by former employees, the firm has been buying jars of its own vegan mayonnaise ‘Just Mayo’ in supermarkets across the United States in order to present itself as a strong brand to potential investors. To make matters worse, the revenue gathered from this buyback campaign was also not properly identified in the firm’s total sales figures.

Hampton Creek is said to be aggressively pushing its fundraising efforts so that its market value grows to US$1 billion, boosting the company to unicorn start-up status.

Co-founder and CEO Josh Tetrick is refuting claims made by authorities that purchases made by his employees accounted for only 0.12 percent of overall sales. The products were also bought for routine quality assurance checks, according to Bloomberg.

The DOJ is still in the early stages of its investigation, and it remains uncertain whether any lawsuits will be filed against the organisation.

But while accusations of channel stuffing have not yet been proven, the case can serve as a reminder to enterprises of the potential repercussions of compliance violations. Besides financial loss, firms can suffer reputational damage and this can prove to be a larger impediment, especially for start-ups such as Hampton Creek.

One technology solution that is able to avoid this particular malpractice and detect suspicious behavior in real-time is predictive analytics. Predictive analytics utilises algorithms that can identify non-compliant transactions and then present the data gathered on a comprehensive dashboard that allows companies to oversee multiple risk areas at once.

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