Luckin Coffee Fraud: Why The Chinese Coffee Chain Is Under Investigation

The hot startup coffee chain and Chinese rival to Starbucks, Luckin Coffee (LK), has found itself in hot water as its chief operating officer has been accused of fraud. Now, under investigation, the company is calling into question the validity of certain transactions that may have been inflated.

According to Luckin Coffee, Mr. Jian Liu, as well as several employees that reported to the COO and director of the company, engaged in misconduct that allegedly led to the fabricating of certain company transactions.

According to the company, sales were fabricated for the Q2 2019 to Q4 2019 earnings reports by about RMB 2.2 billion ($300 million). Some costs and expenses were also inflated during this time to a figure that has not been identified by the special committee to date, Luckin Coffee said.

The company has placed Liu, and the associated employees, on suspension during the investigation and has terminated the contracts of all parties involved in the identified fabricated transactions.

Luckin Coffee said it will release additional information about the investigation as it becomes available and will take legal actions against the individuals responsible for the misconduct.

Luckin Coffee is known as the fastest-growing coffee chain in China. The company has stores in 50 countries beyond China, offering products that are reportedly, on average, more affordable than Starbucks. The company filed its IPO in April 2019, raising $561 million at $17 per share, according to Retail Dive.

Shars of Luckin Coffee were down 15.94% as of market close on Friday.