Luckin Sold Vouchers to Companies Tied to Chairman, WSJ Reports

(Bloomberg) -- Luckin Coffee Inc., the fast-growing Chinese chain that’s at the center of an accounting scandal, inflated its sales by selling vouchers to companies that were tied to its chairman and controlling shareholder, the Wall Street Journal reported.

A fictitious procurement employee also processed more than $140 million of payments for materials and services, the newspaper said, citing internal documents and public records.

Luckin, which had billed itself as a rival to Starbucks Corp. in China as it expanded rapidly, is trading at a fraction of its former value after announcing investigations into fraudulent transactions representing a significant portion of its revenue. The company is being probed by regulators in both the U.S. and China, including the U.S. Securities and Exchange Commission, and has ousted its chief executive officer and other senior officials.

Representatives for Luckin did not immediately respond to a request for comment from Bloomberg News. The SEC declined to comment.

Nasdaq is looking to delist Luckin, although its shares are now trading again after being suspended for weeks.

After the company raised $645 million in an initial public offering in 2019, the company announced ambitious growth targets. Employees were already engineering fake transactions before the IPO, the Journal reported, citing people familiar with the matter.

The newspaper said 200 million to 300 million yuan ($28 million to $42 million) of sales were fabricated by employees using individual accounts to purchase the vouchers, according to the Journal. This then evolved into bulk voucher sales to little-known companies, including one that was linked to a relative of chairman and founder Lu Zhengyao, the report shows, citing corporate registry records.

Luckin grew quickly by employing a strategy used with CAR Inc., a vehicle rental business also founded by Lu, more than a decade ago: burning money -- $130 million in a year -- from investors to grab market share quickly. The company lured patrons with generous discounts: first-time customers got a free cup of coffee and six vouchers for 50% off future purchases.

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