When Beyond Meat (NASDAQ:BYND) went public last year, investors went wild. The stock delivered outstanding returns for those who got in on the ground level, and it seemed that the plant-based burger maker could do no wrong on Wall Street.
Since touching $234 back in July, the stock has come down meaningfully, but at $120 per share, Beyond Meat is still priced for perfection. That’s about to change— the firm’s legal troubles threaten to tear down its vegan empire.
When BYND went public, a tiny paragraph in its prospectus mentioned an ongoing legal battle between itself and former manufacturer Don Lee. Investors largely brushed this off— even in October when Beyond Meat’s earnings report showed a 174% increase in legal costs.
After months of turning a blind eye to Beyond Meat’s mounting legal troubles, investors are finally being forced to confront reality— the company may be in big trouble.
Danny Goodman, director of development at Don Lee Farms, told CCN.com that a judge has ruled in favor of Don Lee in the first of many claims.
The judge has ruled in our favor and has ordered Beyond Meat to pay in the first of several of our claims. They ruled Don Lee Farms proved the probable validity of its claim that Beyond Meat breached its manufacturing agreement. Beyond Meat’s CFO and others are now named individually for fraud.
Don Lee’s victory suggests the family-owned company’s case is valid, and that Beyond Meat may be up against a damaging legal battle in the year to come. According to Goodman, the trial date is set for May 18 this year.
Back before Beyond Meat was the plant-based burger everyone was tweeting about, the firm was using Don Lee Farms to manufacture its Beyond Burgers.
Don Lee alleges that it helped Beyond formulate its flagship product using its own family trade secrets while they were partners. Eventually, Beyond Meat decided to find another manufacturing partner, breaking its contract with Don Lee. The manufacturer alleged Beyond took its trade secrets used to create Beyond Burgers with it.
When Beyond left, the firm was accused of sharing Don Lee’s processes with competitors in order to achieve the same quality product. Don Lee is suing Beyond Meat for breaking its contract and misappropriating trade secrets.
But that’s just the beginning.
Don Lee is separately naming three Beyond Meat executives in its fraud claims:
According to Don Lee, they conspired to doctor a food safety report that raised “significant food safety issues at Beyond Meat’s facility.”
Monday’s ruling will allow the case to go forward, and it shines a spotlight on the culture in Beyond Meat’s executive suite. It suggests that Beyond Meat is finally starting to take Don Lee’s Claims seriously— just 24 hours after the ruling, the burger-maker hired a new legal team.
According to Don Lee Farms President Donald Goodman, this is just the first inning of what’s likely to become a very painful legal battle for Beyond Meat and its investors.
Our claims have been shown to several judges and each one has ruled in our favor. We are pleased with where we are today but it is just the beginning. We will prove our claim that Beyond Meat misappropriated our trade secrets to manufacture the Beyond Burger and other products. We will prove the breach of the Exclusive Supply Agreement and fraud claim committed by Mr. Nelson and others.
As the case is ongoing, Don Lee wasn’t able to provide any specifics regarding finances. But court documents viewed by CCN.com showed that Don Lee is requesting $628,689.00 in unpaid invoices for product shipped to Beyond Meat between April 7, 2017, and May 16, 2017.
On top of that, investors can expect Beyond Meat could be responsible for paying out damages for lost revenue due to the misappropriation of trade secrets and fraud if a verdict favored Don Lee.
The total legal cost to Beyond Meat isn’t completely clear. But when you consider that the product in question, the Beyond Burger, makes up 70% of Beyond Meat’s overall sales— it’s hard to imagine a scenario in which this doesn’t hurt BYND stock moving forward.
So far, BYND stock hasn’t felt much of an impact from the Don Lee dispute. But with the firm’s CFO staring down a fraud suit and its flagship product being called into question, investors may want to consider cutting their ties.
Things look like they’re going to go from bad to worse for Beyond Meat in the months ahead as details about the lawsuit emerge, so it may be time to jump ship.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.
Editor’s Note: 01/30/2020 02:45 AM – The article has been updated for clarity on the allegations against Beyond.