China's finance, market regulation, and securities authorities will issue administrative penalties to the operating entities of Luckin Coffee Inc., two of its affiliates, and third parties assisting its illegal acts after an investigation confirmed that the coffee chain had engaged in financial fraud and false commercial publicity.
The Ministry of Finance said on Friday that its investigation, now completed, found that between April 2019 and the end of the year, Luckin Coffee inflated its sales revenue by 2.12 billion yuan (about 303.58 million U.S. dollars), 41.16 percent of its disclosed revenue, via fabricated voucher transactions.
Apart from the inflated revenue, the company's costs and expenses were also inflated by 1.21 billion yuan, while its profits were inflated by 908 million yuan during the period, the ministry said on its website.
The ministry started the investigation on May 6, probing the company's two operating entities in the country, along with 23 other related enterprises and financial institutions.
Investigations conducted by the State Administration for Market Regulation (SAMR) showed that the company's two operating entities in China violated regulations of fair competition by fabricating a false performance through means including false transactions, according to a statement released by the administration.
Based on the false performance, Luckin also implemented false commercial publicity with the assistance of third-party institutions, the SAMR said.
The China Securities Regulatory Commission (CSRC) also said on Friday that it found two of Luckin's affiliated parties listed on China's National Equities Exchange and Quotations, or the "new third board," violated China's Securities Law with illegal acts in information disclosure.
The CSRC has coordinated with the finance and market regulation authorities in investigating the illegal acts of the operating entities of Luckin Coffee Inc. in China and related parties, while working with the U.S. securities regulator under the cross-border cooperation mechanism of the International Organization of Securities Commissions.
Luckin Coffee, which is domiciled in the Cayman Islands, registered to issue shares via an overseas regulator, and listed on the Nasdaq Stock Market in May 2019.
On June 27, the company put out a short statement through its verified account on Sina Weibo, saying its shares would be suspended from trading on June 29, but its more than 4,000 stores, employing nearly 30,000 workers in China, would continue normal operations.