Luckin Chairman to Face Criminal Charges Amid New Evidence in Fraud Probe
Lu Zhengyao, chairman of Luckin Coffee Inc., is expected to face criminal charges in China as emails revealed his instructions to commit fraud, an exclusive report from Caixin said.
The Nasdaq-listed Chinese coffee chain, which has been a primary competitor to Starbucks in China, was found to have paid taxes on bogus transactions, according to authorities from China’s Ministry of Finance.
The investigation is still ongoing and Lu remains in the position so far.
SEE ALSO: Luckin Coffee Continues Trading After Receiving Delisting Notice from Nasdaq
“I believe the business model of Luckin is correct,” Lu said mid-May after receiving a delisting notice from Nasdaq, adding that he was willing to participate in any investigations. “My business style might be aggressive but I’ve never deceived investors.”
Growing from one shop in Beijing to the largest coffee chain (by store count) in China in less than three years, Luckin has been falling apart amid fraud allegations. Starting in May, retail stores all over the country have been shutting down.
In early May, the company announced that it had fired CEO Jenny Zhiya Qian and COO Jian Liu and appointed its senior vice president Jinyi Guo as acting CEO after an internal investigation revealed $310 million in fabricated transactions. It also ousted six other executives..
Ever since investment firm Muddy Waters posted an 89-page report accusing Luckin of financial fraud in January, the company has been in the spotlight and faced a wave of backlash from American and Chinese regulators. The document claimed the number of items per store was inflated by at least 69% in 2019’s Q3 and 88% in Q4 based on videotapes and thousands of receipts.