Luckin Coffee on Sunday apologised and pledged to strengthen controls after an internal investigation found hundreds of millions of dollars of fake sales last year, wiping about 75 per cent off the company’s market value.
Lu Zhengyao, the company’s chairman, said on social media that he was “ashamed” and “accepted all questions and criticisms”, while promising to do his best to recover the losses. Mr Lu backed the start-up in 2017 as it aimed to take on Starbucks in China and remains one of its largest shareholders.
“I personally blame myself. Regardless of the final findings of the independent committee, I will bear the responsibility that I ought to,” Mr Lu said in a post widely reprinted by local Chinese media on Sunday.
Mr Lu is also the chairman of Hong Kong-listed China Auto Rental, whose share price plunged as much as 70 per cent on Friday as investors cut their exposure to the entrepreneur’s businesses. “We’ve let down and hurt too many people,” Mr Lu said.
Several employees, including Luckin’s chief operating officer, have been suspended and are under investigation and Luckin said it reserved the right to take legal action against them. The group warned last week that its previous financial statements could no longer be relied on.
Law firms in the US have already begun recruiting investors with losses to join class-action suits against the lossmaking company, which had more than 4,000 outlets by the end of 2019.
China’s securities regulator condemned the alleged fraud on Friday and said it would look into the case.
“The company will also deeply reflect and repent, and strengthen our internal controls,” Luckin said in a statement. The internal investigation, overseen by a special committee of the board, is in its early stages and Luckin said its conclusions would be made public.
“We will take all necessary remedial measures and we will not skirt any problems brought on by this matter,” the company said, noting it would continue to serve its customers and operate normally in the meantime.
The company revealed last week that the early stages of the investigation indicated that the “aggregate sales amount associated with the fabricated transactions from the second quarter of 2019 to the fourth quarter of 2019 amount to around Rmb2.2bn ($310m)”.
The intense local media coverage of the alleged fraud has spurred a rush of customers to Luckin’s takeaway coffee shops. Some are apparently worried they might not be able to cash in their discounted coffee coupons that the chain is known for.
“If we wait any longer, we won’t have the opportunity to drink anything,” said one user on Weibo, China’s version of Twitter.