The US Securities and Exchange Commission (SEC) has now placed the Chinese coffee chain operator Luckin Coffee under investigation. The NASDAQ-listed company is being investigated by the regulator after it revealed that its employees had intentionally fabricated sales last year to artificially inflate its performance.
A report published on Wednesday claims that the SEC is seeking the cooperation of Chinese regulators, which have also already launched their own investigations into the company's activities. Earlier in the week, the State Administration of Market Regulation (SAMR), China's largest regulatory body, conducted a raid on one of the company's offices as part of its comprehensive investigation into Luckin Coffee's finances.
Sources with knowledge of the matter claimed that China's Securities Regulatory Commission is intending to fully cooperate with the SEC's investigation. Luckin Coffee originally disclosed the findings of its internal review on April 2, revealed that it had discovered that one of its staff had faked sales of around $310 million in its financial statements from the second quarter to the fourth quarter of 2019.
Following its disclosure, the company's shares immediately tanked, falling by as much as 80 percent during a single session. Five days later, the NASDAQ exchange suspended all trading of the stock, which is now frozen at a price of $4.39 per share, roughly 89 percent below its price at the start of the year.
The coffee chain operators launched its initial public offering (IPO) in the US in April of last year. During its debut, the company had one of the most successful IPO launches on the NASDAQ. Luckin Coffee's share prices reached a peak of over $51 per share back in October last year.
Luckin Coffee has since suspended its chief operating officer, Jian Liu, who was implicated as the mastermind of the scheme. Employees working under the executive that were also implicated in the scheme were also suspended.
The SEC's decision to launch an investigation on Luckin Coffee comes after continued pressure from lawmakers and investors, who called on more stringent regulatory action against fraudulent activities conducted by foreign companies listed in the US. The SEC previously stated that launching an investigation into the matter would be risky and complex given that its ability to enforce regulatory action against international firms is limited.
In a statement published last week, the SEC pointed out that it will be difficult to obtain necessary information from foreign companies, particularly those based in China. The country recently rolled out a new law that will require companies to first seek approval from Chinese regulators before cooperating with any investigation conducted by international authorities.
