Luckin Probe Ends Ahead of Meeting Seeking Chairman’s Ouster

Luckin Coffee Inc. said an internal investigation into fabricated transactions dating back to April 2019 is drawing to a close ahead of a special meeting that is expected to result in the removal of the Chinese coffee chain’s chairman.

The once high-flying company that took on Starbucks Corp. fired Chief Executive Officer Jenny Zhiya Qian, former Chief Operating Officer Jian Liu and some employees who reported to them in May, after uncovering a scheme that funneled funds to the company from several third parties with links to the participants.

As a result of the fabricated transactions, net revenue was inflated by approximately 2.12 billion yuan ($300 million) in 2019 while costs and expenses were inflated by 1.34 billion yuan, the company said in a statement.

Luckin said its board is meeting Thursday to consider removing Charles Zhengyao Lu as a director and chairman, and to weigh firing 12 other employees and taking disciplinary actions against 15 others.

Lu became a billionaire after his fast-growing Chinese chain went public in the U.S., but much of his wealth was wiped out by a plunge in Luckin’s stock since April, when the company disclosed the probe. Lu last month resigned as chairman of Car Inc., China’s biggest rental-car fleet operator, as scrutiny increased over Luckin and the accounting scandal.

Luckin said it has implemented several immediate improvements to its finance functions. Though a special committee’s probe is essentially complete, it may continue to peform additional investigation steps.

Luckin, founded in 2017, raised $645 million in its U.S. IPO last year and counted BlackRock Inc. among its backers. It took direct aim at Starbucks in China, with a strategy to open more stores in two years than the Seattle-based heavyweight has in two decades.

Luckin’s fall from grace has made it a poster child for concerns about Chinese corporate governance, fueling a debate in Washington over the extent to which U.S. money and capital markets should be made accessible to firms from a growing geopolitical rival.

©2020 Bloomberg L.P.

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