A Luckin Coffee store in Beijing | Photo Credit

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Luckin Coffee’s rapid growth strategy has been thrown into uncertainty after an internal investigation led by independent auditors discovered fraudulent sales involving RMB2.2bn (US$310m).
 
Citing ‘misconduct, including fabricating certain transactions’, Luckin said it had suspended its COO Jian Liu and other unnamed employees as it continued to assess the financial impact of the findings. Luckin also revealed it would be considering legal action against those accused of wrongdoing.
 
The Xiamen-based coffee chain, which reports it has opened more than 4,500 stores since late 2017, saw its shares fall more than 84% after telling investors they could no longer rely on 2019 financial statements.
 
‘Investors should no longer rely upon the company's previous financial statements and earning releases for the nine months ended September 30, 2019 and the two quarters starting April 1, 2019 and ended September 30, 2019, including the prior guidance on net revenues from products for the fourth quarter of 2019, and other communications relating to these consolidated financial statements,’ Luckin Coffee said in a statement.
 
Allegations Luckin Coffee had posted fraudulent operational data first arose in February 2020 from US analyst firm, Muddy Waters Research, which Luckin denied. The digital and delivery-focused coffee chain is also currently the focus of a class-action lawsuit brought on behalf of US investors alleging the false disclosure of financial performance metrics.
 
The development will be a significant blow to Luckin as businesses in China tentatively emerge from coronavirus quarantine measures that have been in place across the country since January 2020. In late March Luckin sought to further harness its extensive e-commerce platform by launching an online electronic accessories store.