China’s Luckin Coffee to pay $180m settlement for fraud charges

Tech-enabled coffee chain Luckin Coffee has agreed to pay US regulators a US$180 million penalty to settle charges that it overstated its expenses, revenues, and losses.

Photo credit: Luckin

This comes after the investigation by the US Securities and Exchange Commission (SEC) found that the company fabricated transactions – actions perpetrated by certain former executives and employees.

The US SEC charged Luckin with defrauding investors by “intentionally and materially” overstating its 2019 revenue and understating its net losses.

The coffee chain neither admitted nor denied the SEC’s fraud claims filed in the Southern District of New York.

The announcement by the market regulator comes after an internal investigation conducted by Luckin in April found that nearly US$300 million in revenue and US$190 million in cost and expenses were fabricated in 2019.

“This settlement with the SEC reflects our cooperation and remediation efforts and enables the company to continue with the execution of its business strategy,” said Jinyi Guo, chairman and chief executive of Luckin Coffee. “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.”

The investigation into Luckin’s finance started after due diligence-based investment firm Muddy Waters Research in February said they would “short” Luckin’s stock after it received an anonymous 89-page report containing allegations of inflated numbers on items sold per store, among other things.

The coffee chain received multiple notices to delist the company from Nasdaq on the back of financial irregularities. Trading in Luckin’s shares was suspended on June 30.