After an embarrassing revelation of grossly fabricated sales figures from Chinese coffee chain Luckin Coffee in early April, China’s authorities are investigating the company.
Wall Street Journal reported that the State Administration for Market Regulation (SAMR) raided the coffee company’s Xiamen headquarters on April 26, demanding access to accounts, transaction records and internal systems. Citing a person familiar with the matter, WSJ said the investigation is expected to continue through the week.
Luckin confirmed the investigation on Monday via its official Weibo account, posting, “The company is currently in active cooperation with market regulation authorities on gathering information about Luckin’s business operation.”
The company noted that all store locations across China will continue operations as normal. In the comments section, a wave of support from internet users poured in as customers posted, “add oil” and “stand firm” to the company’s latest announcement.
China’s largest competitor to US-based Starbucks within the Chinese mainland market, Luckin lures consumers by offering a cheaper, domestic coffee alternative. “You must stand firm! Because of you I don’t drink Starbucks,” commented one Weibo user.
In addition to the SAMR investigation, China Securities Regulatory Commission (CSRC) opened an investigation into the company on Monday, and has “pledged to increase the scrutiny of publicly traded companies’ accounts and applicants of initial public offerings,” as cited by South China Morning Post.
Since 2019, the CSRC has opened investigations on 22 listed companies for accounting fraud, 18 of which were penalized.
In early April, the NASDAQ-listed company admitted to inflating transaction volume by RMB2.2 billion in 2019. The internal investigation caused shares of Luckin to drop by 83%, hitting a new low of USD4.39 on April 6. Trading has been temporarily halted since then.
[Cover image via @恭喜发财靓仔仔/Weibo]