Luckin Coffee’s board initiates investigation into $300M potential fraud

0
84

China-based Luckin Coffee, the fastest growing growing coffee brand in the world, has dazzled VCs, public market investors and frankly us over the years with its dizzyingly high growth, expanding from a handful of stores and delivery kiosks to tens of thousands in a just a few years, quickly outpacing Starbucks’ aggressive expansion in the world’s second largest economy.

All those numbers though may not be what they seem.

In a filing with the SEC this morning, the company’s board announced that it has initiated an internal investigation into the activities of its former COO Jian Liu, who may have inflated revenues by the company by an early estimate of more than $300 million (RMB2.2 billion). Expenses are believed by the board to be similarly inflated. Legal firm Kirkland & Ellis is the board’s counsel in its internal investigation.

Contact details for Jian Liu could not be located.

The alleged fraud is believed to have begun in the second quarter of 2019, although further details will have to come as the company conducts its investigation. The company told investors in its filing that they shouldn’t rely on the company’s recent financial statements, which are now believed to be inaccurate given the surfacing of this information.

Luckin shares, which trade as American Depositary Receipts, are down 70% right now according to Yahoo Finance.

WTF are CDRs? (other than a potential trillion-dollar market)

The announcement of the investigation comes just days after the company appointed two new independent directors to its board. Last week, the company announced that Tianruo Pu, a seasoned accounting executive who was CFO of Zhaopin and UTStarcom, and Wai Yuen Chong, a supply chain executive who had stints at Charoen Pokphand Group and Luckin competitor Starbucks, had joined as independent directors and joined the company’s audit committee.

China’s Luckin Coffee raises up to $651M in upsized US IPO

Luckin Coffee debuted in its IPO in May 2019 with a hot $650.8 million offering on Nasdaq, just a few weeks after raising a private round of funding from Blackrock. The company was notorious for both its stratospheric growth and also for its ample losses, with its 2018 numbers (before the alleged fraud detailed by the company) showing $125 million in revenue and $475 million in losses.

The misunderstandings of 18-month-old Luckin’s $500M IPO

Source: TechCrunch

READ  Baidu launches simultaneous language translation AI

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.