US regulators have hit Luckin Coffee with a $180m penalty after finding that the scandal-plagued Chinese coffee chain altered bank records and set up a fake database as part of an effort to fabricate its accounts.
The Securities and Exchange Commission on Wednesday charged the company with defrauding investors by materially misstating revenue and expenses, inflating its growth rates and understating its losses.
Luckin agreed to the settlement, which is subject to court approval, without admitting or denying the allegations.
Once touted as China’s rival to Starbucks, Luckin listed in New York last year and initially impressed, but shocked Wall Street in April when it said hundreds of millions of dollars of sales had been fabricated. The stock was subsequently delisted from Nasdaq and shareholders ousted its founder, Charles Zhengyao Lu.
In a legal complaint filed in the Southern District of New York, the SEC accused Luckin of doctoring its books over a period stretching at least from April 2019 to January this year.
Officials said the company had “intentionally fabricated” more than $300m of retail sales through the use of related-party transactions. Luckin had sought to conceal the fraud, they added, by inflating its expenses by more than $190m, creating a fake operations database and altering accounting and bank records.
The result, the SEC said, was that Luckin “materially overstated” reported revenues by more than 27 per cent for the quarter ending June 30, 2019 and by 45 per cent for the quarter ending Sept 30, 2019, and so understated its net losses.
During the period of the fraud, the SEC added, Luckin raised more than $860m from debt and equity investors.
Stephanie Avakian, director of the SEC’s enforcement division, said: “We will continue to use all our available resources to protect investors when foreign issuers violate the federal securities laws.”