China to punish Luckin Coffee for financial fraud

China's finance ministry will issue administrative penalties to the operating entities of Luckin Coffee Inc after an investigation confirmed that the coffee chain had engaged in financial fraud.

The Ministry of Finance said Friday that its investigation, now completed, found that between April 2019 and the end of the year, Luckin Coffee inflated its sales revenue by 2.12 billion yuan (US$303.58 million), 41.16 percent of its disclosed revenue, via fabricated voucher transactions.

Apart from the inflated revenue, the company's costs and expenses were also inflated by 1.21 billion yuan, while its profits were inflated by 908 million yuan during the period, the ministry said on its website.

The ministry started the investigation on May 6, probing the company's two operating entities in the country, along with 23 other related enterprises and financial institutions.

Luckin Coffee, which is domiciled in the Cayman Islands, registered to issue shares via an overseas regulator and listed on the Nasdaq Stock Market in May 2019.

On June 27, the company put out a short statement through its verified account on Sina Weibo, saying its shares would be suspended from trading on June 29, but its more than 4,000 stores employing nearly 30,000 workers in China would continue normal operations.