Sunday 23 January 2022

Luckin Coffee delays annual report, as founder Lu Zhengyao may face criminal charges

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MILAN – Luckin Coffee said Monday its annual report on Form 20-F will be delayed as the result of the COVID-19 outbreak and the pendency of its internal investigation. The company disclosed in a filing to the United States Securities and Exchange Commission it “does not expect that it will be in a position to file the Annual Report within the 15-day extension period provided in Rule 12b-25(b)”

“As previously disclosed, the Board of Directors of the Company has formed a Special Committee to oversee an internal investigation (the “Internal Investigation”). The filing of the Company’s Annual Report on Form 20-F for the year ended December 31, 2019 (the “Annual Report”) is delayed as the result of the impact of the delayed financial statement preparation process caused by COVID-19 and the pendency of the Internal Investigation,” says Luckin in the filing to the SEC.

“The Company is working diligently to explore possible ways to file the Annual Report as soon as possible. However, the Company does not expect that it will be in a position to file the Annual Report within the 15-day extension period provided in Rule 12b-25(b)” the filing also reads.

Recently, Luckin Coffee slashed its store count by nearly 12%, coming amid allegations of fraud and an investigation that revealed hundreds of millions of dollars worth of fraud committed by senior leadership.

Up until recently, the company’s alternative data reflected ongoing growth of store count in China – that is, until the drop-off that we track, above. Starbucks, on the other hand, is growing store count in Asia, and opening more stores in China post-pandemic.

Luckin Coffee’s founder Lu Zhengyao is said to be in line for criminal charges over his role in a RMB 2.2 billion ($310 million) faked sales scam at the takeaway coffee company.

Following reports in Chinese local media last week that authorities have uncovered emails that show Lu’s hand in the fraud, Hong Kong-listed car rental firm CAR Inc – which Lu founded in 2007 and steered to a $400 million IPO in 2014 – said in a bourse filing last week that the Beijing-based entrepreneur had resigned as chairman.

Lu’s investment firm, UCAR, which is the parent company of Luckin, has already sold off its total stake in Car Inc., China’s largest car rental company.

Although CAR Inc did not link the departure to the Luckin Coffee scandal, market analysts have indicated that the move was designed to facilitate a bailout deal announced just ten days ago that will see state-owned BAIC Group buy a 21 percent stake in CAR Inc from Lu’s ride-hailing firm UCAR.

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