China's Luckin Coffee to remain open amid fraud probe

BEIJING • Luckin Coffee yesterday said it will maintain normal operations at its stores, apologising to the public days after it announced that an internal investigation showed that its chief operating officer and other employees had fabricated sales deals, upending what was supposed to be one of China's best growth stories.

Shares of Luckin sank as much as 81 per cent last Thursday in New York after it said the investigation found that fabricated sales from the second quarter of last year to the fourth were about 2.2 billion yuan (S$446 million).

China's securities regulator said last Friday that it will investigate claims of fraud at Luckin Coffee, and sources said some of the banks involved in the Chinese chain's successful US initial public offering (IPO) last year were reviewing their work in the listing.

The revelations revived doubts about financial reporting that have for years dogged Chinese stocks listed in the United States and Hong Kong, two exchanges frequently picked by company founders to raise new funds.

While China recently changed regulations to punish instances of financial fraud onshore, the penalties remain negligible.

Just last year, one of China's largest listed drug-makers, Kangmei Pharmaceutical, said it had overstated cash holdings by more than US$4.3 billion (S$6.2 billion).

Luckin's IPO attracted a number of prominent investors, including asset management giant Blackrock and Singapore sovereign wealth fund GIC.

Like others in the industry, the company - founded in June 2017 - has been hit hard by the coronavirus epidemic.

In late January, it was forced to temporarily close an estimated 200 coffee shops in the central Chinese city of Wuhan, the original epicentre of the outbreak, as well as many in other cities.

REUTERS, BLOOMBERG

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A version of this article appeared in the print edition of The Straits Times on April 06, 2020, with the headline China's Luckin Coffee to remain open amid fraud probe. Subscribe