May 12, 2020 / 5:00 PM / 22 days ago

Luckin Coffee sacks CEO, COO for alleged fraud

(Reuters) - Chinese coffee chain Luckin Coffee Inc fired its chief executive and chief operating officers following an internal probe on fabrication of annual sales numbers, the company said on Tuesday.

FILE PHOTO: A cup of 'Luckin Coffee,' coffee is displayed during the company's IPO at the Nasdaq Market site in New York, U.S., May 17, 2019. REUTERS/Brendan McDermid/File Photo

Luckin, a major rival to Starbucks in China, revealed in April that much of its 2019 sales of about 2.2 billion yuan ($310.77 million) were fabricated by its COO and other employees, who had been suspended while the company carried out its investigation.

Jenny Zhiya Qian and Jian Liu, who were CEO and COO respectively, will also exit the company’s board.

The embattled coffee chain said it has been cooperating with and responding to inquiries from regulatory agencies in both the United States and China, who began an investigation into the company last month.

Meanwhile, Luckin’s chairman, Charles Zhengyao Lu, and Qian handed over shares in the coffee chain to lenders after a company controlled by Lu’s family defaulted on a $518 million margin loan.

Qian, who has led the company since November 2017, was also chief operating officer for ride-hailing service provider UCAR Inc and auto rental company CAR Inc, both founded by Lu.

Liu, who became COO in May 2018, has also held senior roles in UCAR and CAR.

Qian and Liu could not be immediately reached for a comment.

Luckin’s shares slumped more than 80% on April 2, the day the probe was revealed, bringing their loss to 90% this year, and leading to a halt in trade since April 7.

The company said Jinyi Guo, a board director and a senior vice president, will take the top job on an interim basis.

Wenbao Cao and Gang Wu, in charge of store operations and customer service, and strategic partnerships teams respectively at Luckin, have been appointed to the board, replacing Qian and Liu.

Founded in June 2017, Luckin’s IPO had attracted several prominent U.S. investors, including hedge funds.

The company has been hit hard by the COVID-19 pandemic, which forced it to temporarily close about 200 coffee shops in the central Chinese city of Wuhan, the original epicentre of the outbreak, as well as many in other cities.

Shortly after the company admitted the fraud and as stores began to reopen, consumers installed the Luckin app on their phones and rushed to claim a free drink the company offers for downloading the app, worried the chain might collapse.

Reporting by Nivedita Balu in Bengaluru; Editing by Vinay Dwivedi

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