Luckin Launches Probe Into Alleged Inflated Revenues
An internal investigation is underway by the board of
directors of Luckin Coffee Inc. into its former COO who may have inflated
estimated revenues by more than $300 million.
The story, first reported by TechCrunch, revealed the
alleged fraud by Jian Liu is believed to have begun in the second quarter of
last year.
In a filing with the Securities Exchange Commission (SEC) on
Thursday (April 2), the board said the agency should not rely on the company’s
recent financial statements, which are believed to be inaccurate.
The coffee giant’s shares sank after Liu and several top
employees were suspended for misconduct, according to Yahoo Finance. The stock
opened on Thursday at $4.91, down 81 percent from Wednesday’s closing price of
$26.20.
The three-person special committee has retained
Chicago-based law firm Kirkland & Ellis as counsel and FTI Consulting of
Washington, D.C. as forensic accounting expert, according to the SEC filing.
The panel told the board that starting in the second quarter
of 2019, Liu, who also served as a company director, and several other
employees, had engaged in misconduct, including fabricating certain transactions.
Luckin Coffee, the fastest growing coffee company in China,
said if the allegations prove true, it will take legal action against the
individuals responsible for the suspected misconduct.
The information identified in the early stage of the investigation
indicates that the aggregate sales amount associated with the fabricated
transactions was in the second quarter through fourth quarter of 2019.
Certain costs and expenses were also substantially inflated
by fabricated transactions during this period, the SEC filing said. As a
result, investors should not rely on the firm’s previous financial statements
and earning releases for the nine months ended Sept. 30, 2019 and the two
quarters starting April 1, 2019 and ended Sept. 30, 2019, including the prior
guidance on net revenues from products for the fourth quarter of 2019.
Luckin Coffee launched its IPO in May 2019 with a $650.8
million offering on Nasdaq, just a few weeks after raising a private round of
funding from Blackrock.
The company had been known for its stratospheric growth and
ample losses. The 2018 numbers, before the alleged fraud detailed by the
company, showed $125 million in revenue and $475 million in losses.
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