Chinese Regulators Target Luckin Coffee After Admission Of Fabricated Sales

Luckin Coffee said China’s market regulators are looking into its operations, and the company is assisting with their work.

The Xiamen-based chain put out a short statement on Monday through its verified account on Sina Weibo, China’s Twitter-equivalent platform, after multiple reports emerged stating that it was under investigation by Chinese regulators. Luckin had disclosed on April 2 that several employees, including its Chief Operating Officer Liu Jian, had fabricated as much as $310 million in sales.

The China Securities Regulatory Commission (CSRC) was said to have sent investigation teams to the company, according to a report by Tencent Technology, a news site operated by Chinese web giant Tencent Holdings. A separate report by the Wall Street Journal said China’s business and commerce regulator, the State Administration for Market Regulation, visited the company’s headquarters on Sunday and demanded access to its accounts and other records.

It was not immediately clear what the investigations may have found or whether they were previously coordinated among multiple regulatory bodies. Luckin didn’t provide any further details in its statement.

The company previously said it had formed a special committee to oversee an internal investigation related to the fabricated transactions, and will release additional information in due course. Its Nasdaq-listed shares have been suspended from trading since April 7, after collapsing 75% on the day of the announcement.

China’s securities regulators had earlier condemned the company’s misconduct. In a statement published on its website on April 6, the CSRC said it had “zero tolerance toward securities fraud,” and will facilitate related investigations based on applicable laws.

Luckin had at one time positioned itself as a local challenger of Starbucks. Founded in 2017, the startup had managed to pull off a $561 million U.S. IPO in less than two years.

The company was said to have operated 4,500 stores in China, with plans to expand to as many as 10,000 locations next year. It also used aggressive discounts–such as buy one cup and get two for free–to attract local consumers, and booked fast revenue growth but also steep losses.