According to Chinese coffee chain Luckin Coffee, an internal probe found that the company’s net revenue in 2019 had been inflated by 2.1 billion yuan (US$300 million).
The investigation, which is “substantially” complete, also found that costs and expenses were inflated by 1.3 billion yuan (US$190 million) last year.
Photo credit: Luckin
The fabrication of transactions began in April 2019, according to a statement.
“In the course of the internal investigation, the special committee and its advisors reviewed over 550,000 documents collected from over 60 custodians, interviewed over 60 witnesses, and performed extensive forensic accounting and data analytics testing,” the company said.
Luckin, a major rival to global coffee chain Starbucks in China, said evidence to date revealed the participation of former CEO Jenny Qian and former chief operating officer Jian Liu, along with some employees reporting to them, in the fabrication. The funds involved in the fraudulent transactions were funneled to the company through “a number of third parties” associated with Luckin’s employees and/or related parties.
Following the findings, the company said its board of directors has terminated Qian and Liu and proposed to require Charles Lu to resign as board director and chairman. A meeting will be held today to consider the proposal.
In addition, 12 other employees related to the fabricated transactions, including those who were previously suspended, will be terminated. Meanwhile, some 15 employees will face disciplinary action. Luckin is also in the process of terminating relationships with all third parties involved in the fabricated transactions.
According to the coffee chain, the special committee may perform additional investigation if new relevant information comes up.
Last week, Luckin said it would file for delisting from Nasdaq, after receiving two delisting notices from the exchange and withdrawing its request for a hearing.
Currency converted from Chinese yuan to US dollar: US$1 = 7.07 yuan.
Editing by Charmaine de Lazo
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