[NEW YORK] Luckin Coffee said an internal investigation into fabricated transactions dating back to April 2019 is drawing to a close ahead of a special meeting that is expected to result in the removal of the Chinese coffee chain's chairman.
The once high-flying company that took on Starbucks fired chief executive officer Jenny Qian Zhiya, former chief operating officer Liu Jian and some employees who reported to them in May, after uncovering a scheme that funnelled funds to the company from several third parties with links to the participants.
As a result of the fabricated transactions, net revenue was inflated by about 2.12 billion yuan (S$417.9 million) in 2019 while costs and expenses were inflated by 1.34 billion yuan, the company said in a statement.
Luckin said its board is meeting on Thursday to consider removing Charles Lu Zhengyao as a director and chairman, and to weigh firing 12 other employees and taking disciplinary actions against 15 others.
Mr Lu became a billionaire after his fast-growing Chinese chain went public in the US, but much of his wealth was wiped out by a plunge in Luckin's stock since April, when the company disclosed the probe. Mr Lu last month resigned as chairman of Car Inc, China's biggest rental-car fleet operator, as scrutiny increased over Luckin and the accounting scandal.
Luckin said it has implemented several immediate improvements to its finance functions. Though a special committee's probe is essentially complete, it may continue to peform additional investigation steps.
Luckin, founded in 2017, raised $645 million in its US IPO last year and counted BlackRock among its backers. It took direct aim at Starbucks in China, with a strategy to open more stores in two years than the Seattle-based heavyweight has in two decades.
Luckin's fall from grace has made it a poster child for concerns about Chinese corporate governance, fueling a debate in Washington over the extent to which US money and capital markets should be made accessible to firms from a growing geopolitical rival.