Chinese regulator fines Luckin Coffee, affiliated groups $9M

The fine, spread across 45 companies, including Luckin, comes at the conclusion of an investigation by China’s State Administration for Market Regulation into the claims of accounting fraud at the coffee chain, a rival to Starbucks in China. The regulator said its probe found Luckin inflated sales, violated competition laws, and misled the public. The other firms involved in the fine were found to support the fraud.

Luckin said in a statement on Chinese blogging site Weibo that it would comply with the penalties and has “carried out an overall rectification on the related issues.”

“We will further improve our operations according to related laws and regulations,” Luckin said.

The company is still the focus of an investigation by the U.S. Securities and Exchange Commission.

Background

A short-seller report by Muddy Waters Research earlier this year first surfaced alleged fraud at Luckin. After initially denying the report, the company changed its tune and opened an internal investigation into the claims, which included allegations its former chief operating officer had overstated roughly $310 million of sales.

The chief operating officer, Jian Liu, was fired, as was co-founder and CEO Jenny Zhiya Qian upon the discovery of more evidence regarding the fabricated transactions. Qian and Liu also resigned from their positions on the board.

New leadership

Upon Qian’s termination in May, Luckin announced Board Director and Senior Vice President Jinyi Guo would take over as acting chief executive officer amid other organizational changes. Guo was officially named CEO and chairman of the board in July.

The company has continued to update the way it does business, announcing last week the appointment of Marcum Bernstein & Pinchuk as its independent registered public accounting firm. Marcum replaces EY, though the company noted the change was related to timetable considerations and not “any disagreement … between the Company and EY on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.”