China will take immediate action against coffee-chain operator Luckin Coffee Inc. after regulators concluded their investigation into the company's financial reporting practices. Two China regulators said they would impose fines and sanctions on the company and others involved.
The country's Ministry of Finance said Friday it had concluded a three-month investigation into the company and 23 other financial institutions involved in the fabrication of hundreds of millions of dollars in fake sales. The ministry found Luckin Coffee guilty of reporting around $304 million in fabricated sales between its second and fourth quarters last year.
The company was also found guilty of inflating costs and expenses by more than 1.2 billion yuan ($171.9 million) and profits by 908 million yuan. These figures are largely in line with the figures disclosed by Luckin Coffee after it concluded its own internal investigation.
The State Administration for Market Regulation said in a separate statement it would take immediate regulatory action against Luckin Coffee and two other companies. The agency is specifically targeting two of Luckin Coffee's subsidiaries, namely Luckin Coffee China Co. Ltd. and Luckin Coffee Beijing Co. Ltd. Both were found guilty of engaging in unfair competition by fabricating and publicizing sales numbers to gain market advantage.
The finance ministry said it would impose administrative penalties on Luckin Coffee and the 23 other institutions. However, it didn't provide further details. The State Administration for Market Regulation also didn't give details.
The sanctions are another blow to the company's already troubled reputation and finances. Its problems have already seen the company delisted from the NASDAQ stock exchange and the removal of its top executives. Following its internal investigation the company immediately removed its chief operating officer Liu Jian, its chief executive officer Qian Zhiya and Chairman Charles Lu.
Lu also faces separate criminal charges in China after investigators found emails showing how he had instructed some of Luckin Coffee's employees to commit fraud.
