Chinese Regulators Prepare To Crack Down On Luckin Coffee

Chinese Regulators To Crack Down On Luckin

Regulators in China are preparing to move against once-hot Luckin Coffee Inc., which admitted booking millions of dollars in nonexistent sales, The Wall Street Journal reported on Friday (July 31).

The Journal said the Chinese Ministry of Finance was preparing to formally reprimand Luckin and impose yet-to-be-disclosed “administrative penalties” after wrapping up its own investigation into the coffee company. Luckin has publicly acknowledged misdeeds.

Luckin has proven to be problematic for authorities in China, in part because it has fueled calls among U.S. investors for more access to the audits of Chinese companies listed in U.S. exchanges.

The Journal said on Friday that a Luckin spokesperson could not immediately be reached for comment.

According to the report, Luckin has admitted that employees fabricated transactions totaling $300 million. The revelations came shortly after Luckin was listed on the NASDAQ stock market. The company has since been delisted, and Luckin has fired its chief executive officer and chief operating officer.

The Journal also noted that the U.S. Securities and Exchange Commission (SEC) is investigating Luckin, which is domiciled in the Cayman Islands.

In May, the Journal reported extensively on problems at Luckin, which was founded in 2017 and had been growing at a scalding pace.

In July, Luckin reported it had concluded an internal investigation into the fraud, and that – among other actions – it would fire a dozen employees thought to have knowledge of it. The company also said it had “implemented several immediate enhancements to its finance functions and engaged an internal controls consultant to evaluate the existing controls environment and recommend enhancements to detect and prevent misconducts in the future.”

Early this month, The Journal reported that the internal inquiry concluded that Founder and Chairman Charles Lu should, at minimum, have known about the fraud. Lu denied any knowledge to the paper.