Vending

Luckin Coffee paying $180M to settle fraud allegations

Photo courtesy of Luckin Coffee.

December 16, 2020

China-based Luckin Coffee, which was once a major Starbucks competitor and a pioneer in self-service coffee, must pay a $180 million penalty after the U.S. Securities and Exchange Commission charged the company Wednesday with defrauding investors by materially misstating revenue and expenses, inflating its growth rates and understating its losses.

Luckin agreed to the settlement but did not admit or deny the allegations of altered bank records and setting up a fake database as part of an effort to fabricate accounts. Specifically, the SEC accused Luckin of doctoring books between April 2019 and January 2020.

The company "intentionally fabricated" over $300 million of retail sales through the use of related-party transactions, according to officials, who also said the company then tried to hide the fraud by inflating its expenses by more than $190 million, creating a fake operations database and altering accounting and bank records.

During the fraud period, the SEC said Luckin raised more than $860 million from debt and equity investors.

The Grand Court of the Cayman Islands appointed Alexander Lawson of Alvarez & Marsal Cayman Islands Limited and Wing Sze Tiffany Wong of Alvarez & Marsal Asia Limited as the joint provisional liquidators, according to a Luckin Coffee press release.

"We are pleased that, following an extensive review of the company's operations and financial position, the JPLs, in conjunction with the company, have developed a detailed and viable restructuring proposal of the company's indebtedness, with a view to the restructuring being presented by way of one or more schemes of arrangements before the Cayman Islands court," the company said in the press release. "The proposal has been developed for the benefit of all stakeholders."

The company earlier this year fired Jenny Zhiya Qian, its chief executive, and Jian Liu, chief operating officer, following a probe into phony transactions.and placed six more employees alleged to have been involved in the transactions on leave.