Luckin may soon face investigations for alleged fraud, report says

Luckin Coffee may soon face regulatory scrutiny as at least 10 US law firms announced their planned investigation into the Chinese beverage brand on behalf of its investors.

Photo credit: Luckin Coffee

The probes were to find out if the Starbucks rival had fabricated its operational and financial figures, including per-store per-day sales, net selling price per item, and advertising expenses, according to a TechNode report.

The development comes after US-based investment firm Muddy Waters Research recently tweeted that it received an anonymous 89-page report alleging that Luckin was reporting fraudulent figures. For instance, the report claims that the startup inflated its number of items per-store per-day by at least 69% in the third quarter of 2019 and 88% in the quarter that followed.

As a result, Luckin’s share price fell 10.74% to roughly US$32.49 per share on January 31. However, it bounced back in February as its shares soared 21.8%, according to data from S&P Global Market Intelligence.

Luckin denied the allegations in February, calling the report misleading, flawed, and without merit. “Luckin Coffee firmly stands by its business model and is confident in benefiting from the strong growth of China’s coffee market in the future,” it said.

At the end of last year, Luckin claimed to be the largest coffee chain in China with 4,507 stores. In comparison, Starbucks has about 4,300 outlets in the country.