Embattled Chinese coffee chain Luckin Coffee has finally announced on Wednesday the results of its three-month internal investigation, confirming that its management has inflated net revenues by USD 300 million during 2019.
The fabrication of transactions, with the participation of the firm’s ex-CEO Jenny Zhiya Qian and ex-chief operating officer Liu Jian (both were forced out in May), began in April 2019, according to Luckin. Since then, the firm inflated its 2019’s net revenue by approximately RMB 2.12 billion (USD 300 million), and costs and expenses by RMB 1.34 billion (USD 190 million), concurrently.
The special committee formed to oversee the investigation into the firm’s auditing issues also uncovered that funds supporting the scam were funneled to Luckin via third parties. The committee is comprised of three independent board directors—Sean Shao, Tianruo Pu, and Wai Yuen Chong—as well as independent legal advisors and forensic accountants.
The conclusion of the probe, however, hardly spells the end of Luckin’s troubles.
Video | The rise and fall of Luckin Coffee, once China’s most promising coffee startup
The firm said its board will hold a meeting on July 2 to consider removing Charles Lu Zhengyao as a director and chairman, a proposal based on the committee’s recommendation, and an assessment of Lu’s degree of cooperation in the internal investigation. The proposal reportedly got seven out of eight board members’ approvals—the single nay coming from Lu himself. The meeting will also resolve the measures against 27 other employees involved in this case.
Meanwhile, another extraordinary meeting of shareholders is scheduled for July 5 on Lu’s request about the firing of independent director Shao, who is leading the internal probe.
The once-flying “Starbucks challenger” officially stopped trading on Nasdaq on June 29 after a one-year rollercoaster, following the stock exchange’s delisting notification. The firm’s shares dived 54% to USD 1.38 on the last trading day. At its peak, Luckin’s shares once rose to USD 51.38 with a market capitalization of USD 13 billion.
However, on June 27, the company announced through a Weibo post that its “over 4,000 Luckin storefronts across the country will operate normally, while 30,000 employees will continue to provide quality products and services as usual.”
Earlier in June, Lu, the scandal-plagued entrepreneur, resigned from his chairman position at car rental firm CAR Inc (HK:0699), where he also serves as a non-executive director, following reports indicating that he might face criminal charges over his involvement in Luckin’s questionable operations, KrASIA reported.
