Luckin Coffee charged with fraud to pay $ 180 million in settlement, SEC says

US securities regulators have Luckin Coffee Inc. accused of accounting fraud on Wednesday, alleging that the company, a major competitor to Starbucks Corp. in China, made up sales and misrepresented other financial metrics to make themselves look better to investors.

Luckin Coffee “materially” misrepresented revenues, expenses and net operating losses “in an effort to falsely achieve rapid growth and increased profitability and to meet the company’s earnings expectations,” said the US Securities and Exchange Commission. Wednesday.

Luckin Coffee, which has been under investigation for months, has agreed to pay a $ 180 million fine to settle the charges without admitting or denying the charges, the SEC said. The settlement is subject to court approval.

US depository shares of Luckin Coffee traded on the Nasdaq through mid-July, and the company raised nearly $ 900 million from debt and equity investors.

“The settlement with Luckin is designed to ensure that injured investors have the best possible opportunity to receive assistance,” said Carolyn Welshhans, an associate director in the SEC’s Division of Enforcement.

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According to the SEC complaint, Luckin intentionally made up more than $ 300 million in retail sales, starting at least April 2019 through January 2020. The company allegedly used related parties to create false sales in three separate sales programs.

The business started in October 2017 and quickly grew to thousands of stores across China. The stock went public in May 2019, with an initial trade of $ 25.47% above the IPO price of $ 17. Stock prices had fallen below $ 4 in the over-the-counter markets on Wednesday.

According to the complaint, certain Luckin employees, not named by the SEC, tried to hide the fraud by increasing operating costs by more than $ 190 million, creating a bogus operations database, and changing accounting and banking records to reverse the false sales. to give.

Luckin would have overestimated his reported revenue by about 28% for the period ending June 30, 2019, and by 45% for the period ending September 30, 2019, the SEC said.

During the period of the fraud, Luckin raised more than $ 864 million from debt and equity investors, the SEC said.

After his misconduct was exposed as part of the annual external audit, Luckin “reported the matter and worked with SEC personnel, initiated an internal investigation, fired certain personnel and added internal accounting controls,” the SEC said.

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