Luckin Coffee Probe Says Chairman Knew or Should Have Known of Fabricated Transactions: Report detailing the internal probe also said Charles Lu didn’t fully cooperate with investigation, according to a person familiar with the matter

www.wsj.com/articles/luckin-coffee-probe-concludes-chairman-knew-or-should-have-known-of-fabricated-transactions-11593953644

An investigation into the accounting misdeeds at Luckin Coffee Inc. has concluded that the company’s chairman knew—or should have known—about the fabricated transactions that inflated the Chinese coffee chain’s sales last year, according to a person familiar with the matter.

A report detailing the internal probe also said that Charles Lu, Luckin’s co-founder and chairman, didn’t fully cooperate with the investigation, the person said.

The monthslong probe was conducted by a special committee of Luckin’s board with the assistance of law firm Kirkland & Ellis LLP. It found evidence that Mr. Lu had knowledge of certain related-party transactions that weren’t properly disclosed, the person added.

Mr. Lu, in an emailed response to a request for comment, said: “Rumor! Not true!” A Luckin Coffee spokesman declined to comment.

WSJ NEWSLETTER

What’s News A digest of the day’s most important news to watch, delivered to your inbox. What’s News I would also like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time.I agree to the Privacy Policy and Cookie Notice. SIGN UP Three-year-old Luckin, an upstart rival to Starbucks Corp. in China, listed on the Nasdaq Stock Market in May 2019. It revealed just 11 months later that more than $300 million of its 2019 sales were fabricated. The company’s American depositary shares are in the process of being delisted from the exchange, and Luckin’s market capitalization has fallen below $1 billion, from more than $12 billion in January this year.

The Wall Street Journal reported in May that a group of Luckin employees began creating fake sales transactions before the company’s IPO, by booking sales of vouchers that could be exchanged for cups of coffee. Some of the vouchers were purchased by individual accounts, but the vast majority were bought during the second half of 2019 by a number of little-known companies, many of which had links to Mr. Lu, according to documents reviewed by the Journal and people familiar with the matter.

In addition, a company with ties to Mr. Lu was recorded in Luckin’s systems as a supplier of raw material and received payments from Luckin that were approved by its former CEO, Jenny Qian, the Journal’s reporting showed.

On Sunday afternoon, a crucial Luckin shareholder vote took place in Beijing that crystallized a fight for control of the company’s board. Mr. Lu, whose status as Luckin’s controlling shareholder has been under threat, had put forth resolutions to remove four directors, including himself and representatives of two other Luckin shareholders, and replace them with his nominees. The result of the vote wasn’t immediately known.