People wearing face masks go through a Luckin coffee shop on June 29, 2020 in Yichang, Hubei Province, China.
Liu Junfeng | VCG | Getty Images
Luckin Coffee has agreed to pay a $ 180 million penalty for settling accounting fraud charges for “intentionally and materially” exaggerating its 2019 revenue and underestimating a net loss, U.S. regulators said Wednesday.
The U.S. Securities and Exchange Commission’s (SEC) fine against China-based rival Starbucks comes after earlier this year it said much of its 2019 sales were manufactured, sending the its actions in the fall and provoking an investigation by China’s securities regulator and the SEC.
The SEC said it found that Luckin “intentionally and materially exaggerated his income and expenses and materially underestimated his net loss in his 2019 financial statements.”
Luckin has not admitted or denied the charges, the SEC said. The company has agreed to pay the penalty, which can be offset by certain payments it makes to its security holders in connection with its interim settlement process in the Cayman Islands.
“This agreement with the SEC reflects our cooperation and remediation efforts and allows the company to continue executing its business strategy,” Dr. Jinyi Guo, President and CEO of Luckin Coffee.
“The company’s Board of Directors and management are committed to a sound internal financial control system that complies with best compliance and corporate governance practices,” Guo added.
The transfer of funds to the holders of the guarantee will be subject to the approval of the Chinese authorities.
“Public issuers that access our markets, regardless of where they are located, should not provide false or misleading information to investors,” SEC Enforcement Director Stephanie Avakian said in a statement.
“While there are challenges in our ability to effectively hold foreign issuers and their officers and directors accountable to the same extent as U.S. issuers and individuals, we will continue to use all available resources to protect investors when foreign issuers violate federal securities laws, “she said.
Founded in June 2017, Luckin had one of the most successful U.S. IPOs of a Chinese company last year, which attracted the interest of prominent U.S. investors, including long-term funds and investment funds. coverage.
But Luckin said in early April that up to 2.2 billion yuan ($ 310 million) in sales last year were made by his chief operating officer, Jian Liu, and other staff members, who had been suspended while the company was conducting its investigation.
Falsified figures equate to approximately 40% of Luckin’s annual sales projected by analysts, according to Refinitiv IBES data.
The Xiamen-based company, which withdrew from the Nasdaq in late June due to the accounting scandal, used related parties to create fake sale transactions using three separate purchase schemes, according to the SEC.
“Luckin employees tried to hide the fraud by inflating the company’s expenses by more than $ 190 million, creating a fake database of transactions and modifying accounting and banking records to reflect fake sales,” he found the agency.
In addition, the SEC alleges that during the fraud period, Luckin raised more than $ 864 million from investors in debt and equity.