Chinese coffee chain company Luckin Coffee has reached a settlement with the US Securities and Exchange Commission (SEC) over its financial fraud case and the company will pay a USD180m fine, as reported by Caixin on December 17. The US SEC filed a suit against Luckin Coffee on December 16, claiming that the Chinese company violated anti-fraud, reporting, books and records, as well as internal controls related clauses. In addition to the USD180m fine, the settlement also included a permanent ban, forbidding Luckin from violating certain provisions under federal securities laws. Since Luckin has already been delisted from the US stock market this past June after listing for only 13 months, this does not have much impact on the company. The settlement still needs approval from the court to take effect.

The US SEC indicated that the settlement aimed to secure compensation opportunities for investors, while its investigation is continuing. In addition, Luckin faces lawsuits from creditors and investors’ class action cases abroad. Prior to this, China’s State Administration for Market Regulation (SAMR), Ministry of Finance (MoF), and CSRC released investigation results of Luckin Coffee’s financial fabrication case at the end of July. Among the three departments, SAMR first announced its penalties for Luckin Coffee in September, at a total of RMB61m over Luckin Coffee’s two mainland entities and 43 third-party companies. Although SAMR’s penalties on the two Luckin entities reached the regulatory ceiling of RMB2m each, it is far lower than the USD180m fine from the US SEC or the firm’s inflated profit of RMB908m in 2019. This implies room for harsher supervisory punishments on such illegal practices in China. Apart from SAMR, MoF and CSRC will also impose punishments over Luckin, its executives, and other related parties.

Though Luckin Coffee has been exposed for financial fraud claims and consequent punishments both domestically and overseas, the company has been trying to maintain operations and consumers still can purchase its beverages. According to Sohu, Luckin Coffee retains its leading position in the Chinese coffee market by market share. Moreover, the company has reached its overall break-even point, while its management expects it may achieve profitability in 2021.

Sources:

http://www.caixin.com/2020-12-17/101640278.html

http://www.caixin.com/2020-09-22/101608080.html

https://m.k.sohu.com/d/488617208?channelId=4&page=1