China’s Luckin Coffee Founder Is $1 Billion Poorer After Company Announces Fraud…

After a stratospheric rise, China’s Luckin Coffee has hit the skids. The Nasdaq-listed coffee chain, which operates only in China, announced on April 2 that an internal audit had turned up allegations of fabricated sales figures. Its founder and CEO, former auto executive Jenny Zhiya Qian, and its chairman, serial entrepreneur Charles Zhengyao Lu, were once billionaires based on the value of their stakes in the company. Their fortunes tanked as the once high-flying stock went from a peak of $50 in mid-January to a recent $4.39 per share. Qian is now worth $150 million and Lu, $500 million.  

The Xiamen-based company was started by Qian, a former executive at Hong Kong-listed car rental firm Car Inc. and ride hailing startup UCar; Lu founded both companies. Qian opened Luckin’s first shop in Beijing in October 2017 and Lu helped fund the business as an angel investor. Luckin grew at a breakneck speed, boasting 4,507 locations by the end of 2019, overtaking Starbucks, which has opened over 4,200 stores in China since entering the country in 1999. Luckin’s stock, which debuted on the Nasdaq in May 2019, closed at an all time high of $50.02 per share on January 17.  

On March 6, Forbes estimated that Qian, who owns around 15% of Luckin’s stock, had a net worth of $1.3 billion, while Lu, who owns a 24% stake, was worth $2.9 billion (Lu also derives a part of his fortune from his car companies). The ambitious businesswoman had reportedly set an even more audacious target of hitting 10,000 stores by the end of 2021, while the company was bleeding cash in a bid to gain market share.

Known for its minimalist, grab-and-go stores and for offering steep discounts, Luckin Coffee lost nearly $250 million in the nine months ending September 30, 2019. But its sales grew almost seven-fold year-over-year to $410 million, for that same period. Its share price steadily rose as investors were tantalized by the potential of the Chinese coffee market.

Now, Luckin Coffee advises that its 2019 second and third quarter results, as well its fourth quarter guidance, can no longer be relied upon because its chief operating officer, Jian Liu, and several of his subordinates, fabricated roughly $310 million worth of transactions during the last three quarters of the year. Already hit by the coronavirus-induced shutdowns, Luckin’s share price dropped from $26.20 to $6.40 per share on April 2, and closed at $4.39 per share before trading was suspended on April 7. On Monday, April 27, Luckin confirmed that it is cooperating with Chinese regulators in their investigation, after reports emerged that its offices were raided by officials the previous day. The U.S. Securities and Exchange Commission is also investigating Luckin Coffee, according to the Wall Street Journal, citing “people familiar with the matter.” The company’s shares have yet to resume trading.

Luckin Coffee declined to comment beyond any public comments or filings, per a company spokesperson.