Luckin’s Scandal Leads to Internal Power Struggle; Source Says Chairman Faces Criminal Charges

Chinese coffee chain Luckin Coffee’s Chairman Charles Zhengyao Lu has faced criminal charges based on evidence of his involvement in financial scandals and the company’s internal investigation, local media Tencent Shenwang reported Wednesday, citing an executive board member who is familiar with the matter.

“According to the investigation results of the Special Committee, Charles Zhengyao Lu and some members of the executive board were involved in the alleged fraud and interfered with the internal investigation,” the source who refused to reveal his identity told Shenwang. “What they have done is sufficient enough to hold them criminally accountable.”

The company announced on June 26 that the Board of Directors of the Company (the Board) has resolved to ask Lu to resign as director and chairman of the Board. A meeting of the Board will be held tomorrow to consider the proposal to remove him. The proposal was requested by the majority of the Board, and “based its recommendations on documentary and other evidence identified in its ongoing internal investigation and its assessment of Mr. Charles Zhengyao Lu’s degree of cooperation in the internal investigation.”

According to Shenwang, there is evidence showing Lu’s participation in the fraud. The main purpose of this board meeting is to find whether each member supports the proposal to remove Lu and reiterate that each member is responsible for the voting decision they make in the meeting tomorrow. Except Lu, the remaining seven directors of the Board all agreed to the removal proposal of its chairman, the source told Shenwang.

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According to another announcement published on the same day, Lu scheduled an Extraordinary General Meeting on July 5 to remove himself, Sean Shao, David Li and Erhai Li, while appointing two more independent directors. The board recommended shareholders vote against the proposal to remove Shao as an independent director of the Board, due to concerns of “potential disruption to the ongoing internal investigation considering Shao currently serves as the chairman of the Special Committee.”

“Shao was expected to make a statement at the Nasdaq hearing as the chairman of the Special Committee. If he is fired by the company, the hearing is no longer necessary, and all the efforts we made to stay listed are useless,” a source told Shenwang. “It shows that our company is still in chaos. We couldn’t satisfy Nasdaq to keep us from getting delisted.”

Shao was assigned as chairman of the Special Committee after Tianruo Pu notified the company of his resignation from the Board due to personal reasons on June 19.