Luckin Coffee shareholders have reportedly voted to oust the company's chairman, Charles Zhengyao Lu. The vote came just days after a purge of the scandal-plagued company's board of directors to strip Lu of his influence and control.
During the initial purge, three boards of directors, including Sean Shao, were removed from their posts. The decision was made during an extraordinary shareholders meeting on Sunday, which was held in Beijing. The ousting of Lu, who is Luckin Coffee's founder, is the culmination of a broader management shakeup at the company following the public scandal over the manipulation of its financial reports.
Since the scandal was made public in May, several high ranking officials have been removed from their positions. In an internal investigation, Luckin Coffee revealed that it had caught a number of employees adding faked transactions to its financial reports worth over 2.12 billion yuan or roughly $300 million. The company's chief operating officer, Jian Liu, reportedly masterminded the move aimed at defrauding its investors.
Since then, Liu along with the company's chief executive officer, Jenny Zhiya Qian, has been fired. Other employees that were involved in the inflation of the reports were also removed. The public scandal resulted in a number of delisting notice from the NASDAQ. Luckin Coffee's share prices quickly plummeted, leading to the temporary suspension of its shares.
Lu's removal is an unusual case for a Chinese company as it is extremely rare for shareholders to remove a company's founder. However, sources with knowledge in the matter claimed that the measure was simply a necessary one to take if the company wants to distance itself from the financial scandal. If it wants to move forward, Luckin Coffee would have to clean its slate and hire new leaders.
Luckin Coffee's road to recovery will likely be a difficult and long one given the scope of its fall. As of today, its share prices have lost more than 94 percent of its value, essentially rendering it worthless. Several companies and banks that backed the company also faced the consequences. Morgan Stanley and Credit Suisse Group are reportedly facing a combined $300 million shortfall on loans that were granted to the company.
Apart from those that were directly affected by the scandal, Chinese companies and the country as a whole had also been indirectly affected. Since news of the scandal broke, the US has rolled out stricter measures aimed at preventing Chinese companies from listing in its capital markets. The issue is also a black eye for China as it has further escalated trade tensions with the US.