Chinese regulatory authorities had reportedly raided the offices of Chinese coffee chain retail operator Luckin Coffee as part of an ongoing investigation into its finances following the publicity of its financial misconduct. The investigation was launched by the State Administration of Market Regulation (SAMR), one of China's strongest regulatory bodies.
Confidence in the company plummeted earlier in the month after it had admitted that one of its employees had faked transactions amount to more than $310 million last year. The scandal resulted in the company's share prices nose-diving to new lows with various regulators now launching investigations into the company's practices.
The ambitious company, which had overtaken Starbucks in China in terms of the number of outlets, listed its shares in the US last year. Since its overseas debut, the company had become one of the most successful Chinese firms listed on the NASDAQ.
In a post on its official Weibo account, Luckin Coffee confirmed that it was being investigated by the SAMR. The company stated that it was fully cooperating with the probe. It added that it will continue to operate its stores across the country while the investigation is ongoing.
Apart from the SAMR, Luckin Coffee is also being investigated by the China Securities Regulatory Commission. The investigation was preceded by the company's announced that it had suspended its chief operating officer, Jian Liu, along with other employees who work directly under him.
Luckin Coffee previously stated that it was actually the one that reported the anomaly in its financial reports to regulators when it found out through an internal review that one of its employees had intentionally fabricated sales. The company revealed that Liu and other employees had inflated its sales numbers from the second quarter up to the fourth quarter last year by around 40 percent of its estimated annual sales figures.
The bloated figures reported by the company throughout the three quarters managed to greatly help its stock price performance in the US. Luckin Coffee managed to nearly triple its stock prices since its debut in New York in May of last year.
Following the revelation of the inflated financial data, trading of Luckin Coffee's shares was temporarily suspended. The NASDAQ stated that it will continue to impose the suspension of trading until it is fully satisfied with its own investigation and Luckin Coffee is able to provide the information it has requested.
The scandal has managed to negatively affect the prospects of other Chinese companies that wish to raise capital abroad, particularly in the US. Regulators and lawmakers have taken action by bolstering exchanges' vetting processes, particularly for companies based in China.
