Money News

Luckin Coffee winds up internal probe ahead of vote on chairman removal

(Reuters) - Luckin Coffee Inc said on Wednesday it was winding up an internal probe on fake annual sales of about $300 million as it prepares to vote on a proposal to remove Founder-Chairman Charles Zhengyao Lu on July 2.

FILE PHOTO: A screen displays the logo for Luckin Coffee during the company's IPO at the Nasdaq Market site in New York, U.S., May 17, 2019. REUTERS/Brendan McDermid/File Photo

The move by the troubled Beijing-based coffee chain comes follows a request by the majority of the directors based on a special committee’s finding that the CEO and COO were involved in fabricating sales numbers.

The coffee chain, according to a media report, sold vouchers redeemable for millions of cups of coffee to companies that had ties to Lu, helping it record a sharp rise in sales.

Luckin said the committee found that 2019 sales were inflated by 2.12 billion yuan ($300.1 million), and costs and expenses by 1.34 yuan billion ($189.7 million).

Fortunes of Luckin, which directly competes with U.S.coffeehouse Starbucks, have nosedived since the probe was disclosed in April, ending up with the Nasdaq suspending the trading in its shares on Monday.

The probe found funds “were funneled to the company through a number of third parties associated with the company employees and/or related parties.”

Lu, who is the controlling shareholder of Luckin, is also the founder of auto-rental firm CAR Inc and Chinese ride-hailing firm Ucar Inc.

During the investigation, Luckin sacked its CEO and COO, both executives who had previously held top positions at Lu’s other firms.

The company said 15 employees are facing disciplinary actions and 12 others who participated in the transactions would be terminated.

Luckin is also in the process of ending ties with all third parties involved in the fabricated transactions, it said, without revealing any names.

($1 = 7.0653 Chinese yuan renminbi)

Reporting by Nivedita Balu in Bengaluru; Editing by Arun Koyyur