Luckin Wraps Probe Into $300M In Fake Coffee Sales

Luckin Coffee announced on Wednesday (July 1) the completion of an internal probe that blames the company’s former CEO and COO for inflating the embattled Chinese java giant’s revenue and expenses by hundreds of millions of dollars.

The Beijing-based coffee chain, which goes head-to-head with Starbucks in China’s booming market, said former CEO Jenny Zhiya Qian and former COO Jian Liu, as well as “certain employees reporting to them,” took part in a scheme under which $300 million in phony coffee sales were put on Luckin’s ledgers in 2019.

The former executives, who were fired by Luckin in May, also inflated the coffee chain’s expenses by nearly $190 million.

The “fabricated transactions” were “funneled” onto Luckin’s books using “third parties associated with the Company employees and/or related parties,” the company said in a press release.

A special committee appointed by Luckin’s board of directors oversaw the probe, which was conducted by Kirkland & Ellis International LLP and FTI Consulting.

Luckin said it is moving to strengthen its accounting and financial oversight functions, with plans for a new “internal audit function” and compliance training for employees.

“In connection with the Special Committee’s findings, the Company has implemented several immediate enhancements to its finance functions and engaged an internal controls consultant to evaluate the existing controls environment and recommend enhancements to detect and prevent misconducts in the future,” Luckin said in a statement.

Still, Luckin will face another round of turmoil on Thursday (July 2), when the company’s board of directors will meet to vote on whether to remove Founder and Chairman Charles Zhengyao Lu.

Luckin said it also plans to fire 12 other employees the company says took part in, or had knowledge of, the phony transactions, with plans to discipline another 15 employees.

“In addition, the Company is in the process of terminating relationships with all third parties involved in the fabricated transactions,” Luckin stated on Wednesday (July 1).