Luckin Coffee, China’s largest coffee chain, made a public apology after admitting that one of its top officials masterminded the fabrication of their sales for 2019 that allowed it to make a remarkable entry on Wall Street.
The company is currently being investigated for fraud after it was found that its former chief operating officer, Liu Jian, have faked 2.2 billion yuan (US$310 million) of their revenue for last year.
Chairman Lu Zhengyao shared in social media that he has already accepted all the criticisms and he was ashamed of the scandal. Nonetheless, he promised to strengthen internal controls and exert more efforts to recoup the losses.
In a US Securities and Exchange Commission filing last week, Luckin said “Jian and several of his staff have been suspended pending an internal investigation.”
Luckin has also revealed in the filing that the fabricated sales covered the second, third and fourth quarter last year that is equivalent to almost half of its estimated 2019 revenue of US$732 million.
“The company retains the right to take legal measures against those suspected to be involved, it will not shield them or be lenient,” the company said in a statement over the weekend.
Shortly after the announcement, it was reported that the company’s shares dropped by more than 70%.
The fraud issue first made headlines when American short-seller Muddy Waters Research published a report raising doubts over the accuracy of Luckin Coffee’s financial report and claimed that the company had falsified its quarter figures.
Established in 2017, the company serves as China’s biggest rival to Starbucks. Luckin coffee strived to dethrone the American coffee giant through an aggressive strategy that enticed more customers.
Luckin coffee now has 4,500 stores in China, surpassing that of Starbucks’ 4,300 stores.
The Chinese coffee chain said that it would maintain operations in all stores amid the controversy.