China’s Luckin Coffee has completed the payment of a $180 million fine for defrauding the accounting system by fabricating more than $300 million in sales in 2020.
The Securities Times on Feb. 5 reported a document that the coffeeshop submitted to the U.S. Securities and Exchange Commission (SEC). Luckin Coffee said it has “met the conditions for” paying the penalties imposed.
The paper estimated that the costly fine means the Chinese coffeehouse chain must have had to sell an equivalent of 75 million cups of latte to make up for it. Judging by the Luckin app, a cup of its latte is 16 yuan in price, or $2.53.
On the same day, the SEC submitted a notice to the court, confirming that Luckin Coffee paid cash to the company’s securities holders through a debt restructuring arrangement, which has satisfied the penalty clause of the final verdict.
The Chinese rival to U.S.’s Starbucks also formally presented a debt restructuring plan for convertible bond creditors to the Cayman court and its 2020 annual report to the SEC, which included audited financial data.
Following the hefty payment, the 2020 fraud case is believed to have reached its end.
On Jan. 19, the Financial Times reported the company was planning to delist from the U.S. at year’s end.
Review of Luckin’s fraud incident
On Jan. 31, 2020, Muddy Waters, a famous international short-selling agency, claimed to have received an 89-page anonymous short-selling report suggesting that most of Luckin’s sales data in 2019 were fictitious. The coffeehouse initially denied the allegations.
As of April 2 that year, the coffee shop admitted in a statement that $310 million (2.2 billion yuan) in sales was falsely reported, which accounted for about 40% of its estimated annual sales.
The company’s stock price dropped by 80% after the announcement, and trading was halted numerous times during the session.
On Feb. 3, Ruixing denied all allegations by Muddy Waters. The company then published a statement acknowledging that it had fraudulently traded about $350,000 (2.2 billion yuan) on April 2, 2020.
Finally, Luckin Coffee released an apology statement on April 5.