Trouble brews at China’s Luckin as top regulator investigates

Luckin Coffee is being inspected by a second national agency a month after China’s securities commission began scrutiny.

The China Securities Regulatory Commission began investigating claims of fraud at Luckin after an internal investigation showed the firm's employees fabricated millions of dollars worth of sales deals [File: Wang Zhao/AFP]
The China Securities Regulatory Commission began investigating claims of fraud at Luckin after an internal investigation showed the firm's employees fabricated millions of dollars worth of sales deals [File: Wang Zhao/AFP]

China’s top market regulator has launched an inspection into Luckin Coffee, joining the country’s securities watchdog in doing so as the coffee chain comes under scrutiny for fabricating millions of dollars worth of sales deals.

Dozens of officers from the State Administration for Market Regulation (SAMR) raided Luckin’s main office in Beijing on Sunday, staying there from morning to evening, a source with direct knowledge of the situation told Reuters news agency.

Luckin Coffee confirmed that it was being inspected by the SAMR in a post on its official Weibo account on Monday, saying it was “actively cooperating” with the regulator, which was trying to understand the company’s operating situation. It did not respond to requests from Reuters for further comment.

The China Securities Regulatory Commission announced earlier in April that it would investigate claims of fraud at Luckin after it announced an internal investigation had shown its chief operating officer and other employees fabricated sales deals worth about 2.2 billion yuan ($310.77m).

The source, and a second one that has been in touch with regulators, told Reuters the Chinese regulators, in particular the CSRC, were acting on a request by the US Securities and Exchange Commission (SEC) to look into Luckin.

The sources declined to be named because of the sensitivity of the issue, Reuters reported.

Chinese state news agency Xinhua reported late on Monday the CSRC had “communicated” with the US SEC after the Luckin case came to light.

The US SEC declined to comment and the SAMR and the CSRC did not respond to requests by Reuters for comment.

Shares in Luckin, which aggressively pitched itself as a challenger to Starbucks in China, have plunged by more than 90 percent from their January high following the news.

Bankers and investors have warned that Luckin’s issues were likely to weigh on other Chinese companies considering a US IPO – a group already affected by the trade tensions of 2019.

Source : Reuters

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