Luckin coffee agrees to pay $180 million settlement fee for accounting fraud case, subject to court approval, and without admitting or denying the allegations.
The US Securities and Exchange Commission regulators (SEC) have charged Luckin Coffee with a $180m penalty after they altered bank records and set up a fake database as part of an effort in defrauding investors by fabricating sales and expenses, inflating its growth rates and understating its losses. We wrote in depth about how the scandal was discovered here.
Luckin Coffee looked impressive earlier this year in January boasting a $12bn valuation, until it shocked investors in April, when they admitted that as much as $310m of their 2019 sales were fabricated. In June, the company accepted Nasdaq’s decision to delist them, leaving a bitter taste in the mouths of western investors who have had their fingers burnt on previous Chinese stock frauds.
The Chairman of Luckin Coffee, Charles Zhengyao Lu, was ousted by shareholders, and faced additional fines and punishment by the Chinese regulator.
SEC concluded that Luckin ‘materially overstated’ reported revenues by more than 27% for the 2nd quarter and by 45% for the 3rd quarter, and understated its net losses.
The SEC added, during the period of the fraud, the Luckin coffee raised more than $860 million from debt and equity investors.
Stephanie Avakian, director of the SEC’s enforcement division said,
We will continue to use all our available resources to protect investors when foreign issuers violate the federal securities laws.
Jinyi Guo, Luckin’s Chairman and Chief Executive, said in a statement,
This settlement with the SEC reflects our co-operation and remediation efforts, and enables the company to continue with the execution of its business strategy.
The company’s board of directors and management are committed to a system of strong internal financial controls, and adhering to best practices for compliance and corporate governance.