Luckin Coffee Inc. on July 1 said its internal investigation found that its 2019 revenues were inflated by 2.12 billion Chinese yuan and that costs for the year were inflated by 1.34 billion yuan.
The coffee shop chain said it also found evidence that its CEO and COO at the time, along with other executives, helped funnel money to support the fabricated figures into the company.
Xiamen-based Luckin said its board is set to remove Chairman Charles Zhengyao Lu in a July 2 board meeting, along with 12 other employees who were allegedly aware of or participated in the fabrication of its results.
According to its probe, the fabrication of sales and costs began in April 2019. In the second quarter, sales and costs were inflated by 250 million yuan and 150 million yuan, respectively, with the same figures inflated by about 700 million yuan and 520 million yuan in the third quarter. Sales and costs were inflated by 1.17 billion yuan and 670 million yuan, respectively, in the fourth quarter of 2019.
Luckin Coffee's special committee and its advisers Kirkland & Ellis International LLP and FTI Consulting jointly reviewed over 550,000 documents and interviewed over 60 witnesses in addition to conducting forensic accounting and data analytics testing.
In the same release, Luckin said it is chartering an internal audit function to test its control functions.
On April 2, Luckin Coffee admitted that it fabricated sales about two months after it denied the same allegations in February. The coffee shop chain had fired CEO Jenny Zhiya Qian and COO Jian Liu as of May 11.
Luckin Coffee was delisted from the Nasdaq at market open June 29.
As of June 30, US$1 was equivalent to 7.06 yuan.