According to a Luckin Coffee news release, the company has formed a special committee to investigate accounting fraud. The special committee is made up of independent Board members Sean Shao, Tianruo Pu and Wai Yuen Chong.
This special committee presented the Board of Directors with evidence of the fraud today. It shows that starting in the second quarter of fiscal 2019, several company employees took part in fabricating certain transactions.
The Luckin Coffee news release notes that these actions lasted into the fourth quarter of the fiscal year. The total amount of fabricated transactions during this time was ¥2.2 billion. Other costs and expenses were also inflated alongside these transactions.
Luckin Coffee’s special committee says that COO Jian Liu, along with several employees under him, is responsible for the accounting fraud. The COO and employees are being suspended and may face legal actions. The investigation also includes the termination of contracts with those identified in the fraud.
Due to the nature of this Luckin Coffee news, the company is now advising its investors to disregard its fiscal 2019 earnings reports for the second and third quarters. It also says that the previous guidance for its fiscal fourth quarter of 2019 should no longer be relied upon.
LK stock was down 75.88% as of Thursday afternoon.
As of this writing, William White did not hold a position in any of the aforementioned securities.