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Luckin Coffee Agrees To Settle Accounting Fraud Charges With SEC For $180M

Luckin Coffee Agrees To Settle Accounting Fraud Charges With SEC For $180M

Chinese coffeehouse chain Luckin Coffee Inc – ADR (OTC: LKNCY) has agreed to pay a $180 million penalty to settle charges of accounting fraud, the U.S. Securities and Exchange Commission said Wednesday.

What Happened: The Associate Director of the SEC’s Division of Enforcement, Carolyn M. Welshhans, remarked that “the settlement with Luckin is designed to help ensure that harmed investors have the best available opportunity to receive relief.”

The SEC alleged that Luckin intentionally inflated its retail sales by $300 million between April 2019 and January 2020 by creating fake transactions using related parties.

The coffee chain, which at one point was seen as a major competitor to Starbucks Corporation (NASDAQ: SBUX) in China, also "intentionally and materially overstated its reported revenue and expenses and materially understated its net loss in its publicly disclosed financial statements in 2019," as per the SEC. 

Why Does It Matter: Although Luckin has agreed to pay the fine, it has neither accepted nor denied the allegations. The SEC noted that penalty could be partially offset by any payments made to shareholders from the provisional liquidation in the Cayman Islands.

Luckin stock, quoting $26.20 on Apr. 1, fell drastically by 75% the next day after the company disclosed its COO had been fabricating transactions for a year.

Price Action: LKNCY closed Wednesday 1.63% higher at $3.74 per share.

Related News: Luckin Coffee Fraud Has Shaken Investor Faith In US-Listed Chinese Companies, Long-Term Backer Citron Says

Photo by Shwangtianyuan on Wikimedia


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