Six months after the restructuring of its management team Luckin Coffee Inc. is mired in another internal conflict.
In a joint letter to Luckin's largest shareholder, Centurium Capital, seven Luckin vice presidents, operations and supply-chain executives and nearly a dozen regional general managers asked the board of directors and significant shareholders to remove the current chief executive and chairperson Guo Jinyi.
Initially posted on social media Momo, the six-page letter alleged Guo's "malpractices" included accusations of graft in downgrading supply-chain quality, abuse of power to dismiss dissent and his lack of management capability. The letter said Guo's actions had "pushed the company to the edge of survival" and called for an independent investigation to look at his alleged graft and appoint a new leader.
"Since Guo became the chief executive, Luckin's raw materials have decreased in quality but increased in cost," the letter said. Guo "has gradually replaced the former high-end brand suppliers with second- or third-level brands that give him easier access to pocket profits."
Guo responded to all employees and alleged the joint letter was drafted Jan. 3 by the former chairperson Charles Lu and former chief executive Jenny Qian and that "some employees were coerced for signatures." Guo added he had asked the board of directors for an investigation to "restore the truth."
Before being appointed as chairperson and chief executive in July, Guo was a board member from June 2018 and senior vice president in charge of product and supply since October 2017. He was also assistant to Lu's car rental company UCAR Inc. from 2016 to 2017.
The U.S. Securities and Exchange Commission accused Luckin Coffee of fabricating more than $311 million in retail sales between April 2019 and January 2020. The scandal forced the company to delist from the Nasdaq in July while Luckin stock lost 90% of its value, or about $11 billion, compared with a peak in January 2020.
As part of its restructuring Lu was replaced as chairperson and chief executive and also saw 270 million shares he held in Ucar - a greater than 10% stake - frozen by Beijing First Intermediate People's Court.
"Those who fabricated accounting and are already out of the company dislike the fact that the company has been recently making a stable business and seeing positive profits," Guo said in his statement. "Please be aware of the rumors aimed at destroying the company." Guo said the company would name its suppliers.
Shares of Luckin Coffee in over-the-counter trade increased from $3.74 to $9.42 at one point since the Dec. 17 report published by the company's joint provisional liquidators and filed in a court in the Cayman Islands where Luckin is registered. It is currently trading at $8.54 a share.
Revenue was up 35.8% year on year in the third quarter to 1.1 billion yuan ($170.1 million) while it was up 18.1% and 49.9% to 565 million yuan and 980 million yuan, respectively, in the first and second quarters, according to the liquidators' report.
In December Luckin Coffee settled Securities and Exchange Commission charges with a $180 million fine - the largest by a U.S.-listed China company.