Luckin Coffee Inc. announced that the Company’s Board of Directors had formed a special committee named the “Special Committee” to supervise an internal investigation into certain issues raised to the Board’s attention during the audit of the consolidated financial statements for the ended December 31, 2019 (the “Internal Investigation”).
The Special Committee includes three independent directors of the Board, Mr. Sean Shao, Mr. Tianruo Pu, and Mr. Wai Yuen Chong, with Mr. Shao serving as its chairman. The Special Committee has retained independent consultants, including independent legal advisors and forensic accountants. The Special Committee has retained Kirkland & Ellis as its independent outside counsel, assisted by FTI Consulting as an independent forensic accounting specialist. The Internal Investigation goes to a preliminary stage.
The Special Committee offered the attention of the Board information, suggesting that, beginning in the second quarter of 2019, Mr. Jian Liu, the chief operating officer and a director of the Company, and several employees reporting to him, had participated in certain misconduct, including fabricating certain transactions.
The Special Committee recommended certain interim remedial measures, including the suspension of Mr. Jian Liu and such employees implicated in the misconduct and the suspension and termination of contracts and dealings with the parties associated with the identified fabricated transactions. The Board accepted the Special Committee’s recommendations and implemented them relative to the currently identified individuals and parties associated with the fabricated transactions. The Company will take all appropriate actions, including lawsuits, against the individuals responsible for the misconduct.
The information identified at this preliminary stage of the Internal Investigation indicates that the aggregate sales amount related to the fabricated transactions from the second quarter of 2019 to the fourth quarter of 2019 amount to around RMB2.2 billion. Certain expenses and costs were also substantially inflated by fabricated transactions during this period. The above figure has not been independently verified by the Special Committee, its advisors or the Company’s independent auditor, and changes as the Internal Investigation proceeds. The Company is analyzing the overall financial impact of the misconduct on its financial statements. As a result, investors should no more trust the Company’s previous financial statements and earnings releases for the nine months ended September 30, 2019, and the two quarters starting April 1, 2019, and ended September 30, 2019, including the previous guidance on net revenues from products for the fourth quarter of 2019, and other communications associating with these consolidated financial statements. The investigation is ongoing, and the Company will remain to assess its previously published financials and other potential modifications.
Luckin Coffee will release additional information concerning the Internal Investigation eventually and is devoted to taking appropriate measures to improve its internal controls.