After an investigation, Luckin Coffee has finally confirmed $300 million in revenue fraud.
In an SEC filing, the company’s Special Committee, which was investigating claims that originally surfaced three months ago, confirmed that the formerly high-fliying coffee chain had indeed fabricated revenue.
The Special Committee found that the fabrication of transactions began in April 2019. As a result, the company’s net revenue in 2019 was inflated by approximately RMB2.12 billion (US$300 million). Costs and expenses for the year were inflated by RMB1.34 billion ($189.6 million).
The report said that ex-CEO Qian Zhiya and ex-COO Liu Jian were both involved in the fraud. The company already delisted from Nasdaq on June 29.
In the announcement, Luckin said the Special Committee and its advisors reviewed over 550,000 documents collected from over 60 custodians, interviewed over 60 witnesses and performed extensive forensic accounting and data analytics testing to confirm the fraud.
The investigation started three months ago when Luckin Coffee admitted its sales figures might have been inflated. That announcement was triggered by a report released in January by short-seller Muddy Waters, which claimed Luckin Coffee overstated the number of coffees sold in each store.
The scandal led to increased scepticism of all Chinese brands. China-listed companies including iQiyi, GSX and TAL all saw their stocks shorted after Luckin Coffee's case came to light.