SEC settles charges that GrubMarket overstated revenue to investors

The Securities and Exchange Commission said it has settled changes against GrubMarket Inc., a private, California-based e-commerce food distributor, for providing investors with financial information that the company should have known was unreliable and that overstated its historical revenues by approximately $550 million.

The SEC order said GrubMarket violated certain antifraud provisions of the federal securities laws. Without admitting or denying the SEC’s findings, GrubMarket agreed to a cease-and-desist order and to pay an $8 million civil penalty, according to a news release.

According to the SEC order, between November 2019 and February 2021, GrubMarket raised approximately $80 million from investors in a private Series D offering. The SEC said when soliciting prospective investors in the Series D round, GrubMarket emailed the investors financial information, including an investor presentation and financial statements, which prospective investors incorporated into their investment analyses and decisions.

At the same time, GrubMarket used a different set of financial information, including in its tax filings, that reflected significantly lower historical revenues for other corporate purposes, according to the SEC. In doing so, the commission said, GrubMarket should have known that the financial information it used to solicit prospective Series D investors, which overstated the company’s historical revenues by $550 million during a five-year period, was unreliable. Even so, the SEC said GrubMarket did not inform any Series D investors about the discrepancy in historical revenues until after the fundraising round closed.

“In our markets, when potential investors ask for and receive financial information from startups, they reasonably expect those financials to be accurate, reliable, and free from material misrepresentations and omissions,” Mark Cave, associate director of the SEC’s Division of Enforcement, said in the release. “Today’s order finds that GrubMarket provided investors with financial information that painted a misleading picture of the company’s historical performance, while at the same time using higher-quality financials for other business purposes. That practice cannot be squared with the company’s obligations to investors.”

Grub Market released a statement to the media indicating its readiness to move forward following the settlement.

“This settlement resolves an investigation by the SEC commenced several years ago relating to GrubMarket’s legacy financial systems," the company said. “The systems were significantly upgraded months before the SEC began its investigation. Over the past several years, GrubMarket has evolved and matured as an organization, including introducing a robust finance function and adopting best-in-class financial controls. We are pleased to have resolved this matter as we continue to position GrubMarket to capitalize on the exciting trends in food tech and ecommerce to take our business to the next level.”