In vowing to penalize once-hot Luckin Coffee, Chinese regulators are moving ahead of any U.S. regulatory measures
By Jing Yang Close Jing Yang July 31, 2020 7:59 am ET Chinese regulators are preparing punitive action against Luckin Coffee Inc., LKNCY 7.14% less than four months after the company revealed that it had fabricated hundreds of millions of dollars in sales.
China’s Ministry of Finance said on Friday it would reprimand Luckin after completing a monthslong investigation. The ministry’s Supervision and Evaluation Bureau, which regulates accounting and other activities, said it would punish two of Luckin’s Chinese-registered subsidiaries. It said it would later disclose the administrative penalties it had imposed.
The agency said the fabricated transactions and publicity based on these transactions constituted unfair competition. It said it started investigating Luckin in April, confirming an earlier report by The Wall Street Journal.Luckin, an upstart rival to Starbucks Corp. SBUX -0.14% in China, said in April that some of its employees fabricated more than $300 million of transactions, only 11 months after its initial public offering on the Nasdaq Stock Market.
The ministry’s findings on the timing and methods used in the accounting misconduct are in line with a Journal report in May, which said that Luckin employees booked revenue by recording sales of numerous vouchers that could be exchanged for cups of coffee. Luckin also paid more than 1 billion yuan to little-known companies that were recorded as suppliers of raw materials, many of which were linked to ex-chairman Charles Lu, the Journal reported. Mr.
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