Luckin out of luck: new probe into sales scam

China’s top market regulator has launched an inquiry into Luckin Coffee — already being investigated by the country’s securities watchdog — as the coffee chain faces accusations of fabricating millions of dollars of sales.

Dozens of officers from the State Administration for Market Regulation raided Luckin’s head office in Beijing on Sunday, staying there from morning to evening.

Luckin Coffee confirmed it was being inspected by the SAMR in a post on its official Weibo account on Monday, saying that it was “actively cooperating” with the regulator, which was trying to understand the company’s operating situation.

The China Securities Regulatory Commission said late on Monday it has communicated with the US Securities and Exchange Commission on cross-border supervision cooperation after the alleged accounting fraud.

The commission said it supports overseas securities regulators in investigating and penalizing accounting fraud by listed companies within their jurisdictions.

Under the cooperation frameworks such as the multilateral memorandum of the International Organization of Securities Commissions, the CSRC has provided audit working papers of 23 companies listed overseas to a number of overseas regulators.

The CSRC announced earlier this month that it would investigate claims of fraud at Luckin after the company announced an internal investigation had shown its chief operating officer and other employees fabricated sales worth about 2.2 billion yuan (US$310.77 million).

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

From the second quarter of 2019, Luckin Coffee’s chief operating officer and several employees engaged in misconduct, including fabricating certain transactions, the company has announced, citing its internal investigation.

Shares in Luckin, which has aggressively pitched itself as the main domestic challenger to Starbucks in the rapidly growing Chinese coffee market, have plunged more than 90 percent from their January high.