Luckin Coffee Finds $300M in Revenue Fraud

Luckin Coffee Inc. lk announced Wednesday that an internal investigation of its financial misconduct found the company inflated its 2019 net revenue by approximately 2.12 billion yuan ($300 million) and inflated its costs and expenses by 1.34 billion yuan across the second, third and fourth quarters.

Luckin confirmed the fabrication began in April 2019.

After a three-month internal investigation of 550,000 documents collected from more than 60 custodians, depositions of more than 60 witnesses, forensic accounting and data analytics testing, Luckin confirmed the fabrication began in April 2019.

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Luckin said it would require Director and Chairman Lu Zhengyao to resign. The board will hold a meeting on July 2 to consider the proposal.

Luckin previously fired its CEO, COO and six other employees who were found to be involved in the fabricated transactions. It will terminate an additional four employees. In addition, the company is terminating relationships with all third parties involved in the fabrication, Luckin said.

Luckin said it has taken a number of measures to prevent such fraud in the future, such as strengthening compliance training, chartering an internal audit function and engaging an internal controls consultant.