China’s regulator’s investigation of Luckin scandal underscores importance of US$7.2 trillion stock market

The CSRC’s commitment to cracking down on accounting frauds is aimed at calming the nerves of frayed investors

Watchdog pledges to increase the scrutiny of publicly traded companies’ accounts and IPO applicants

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The Luckin Coffee scandal has got the attention of China’s top level leaders. Photo: Bloomberg

Published: 6:45pm, 27 Apr 2020Updated: 10:37am, 28 Apr 2020

China’s market regulators are investigating Luckin Coffee, previously touted as the country’s challenger to Starbucks, after the company admitted it has inflated 2.2 billion yuan (US$309 million) worth of transactions in a shocking accounting scandal.

“The company is actively cooperating with market regulation authorities on gathering information about Luckin’s business operation,” the company said in a statement posted on the Twitter-like social media platform Weibo.

“Operation of the company and all of our stores across China remain normal,” it added.

Nearly a month ago Nasdaq-listed Luckin rocked the market with the disclosure of an internal investigation that found chief operating officer Liu Jian had drastically fabricated sales and turnover between the second and fourth quarters of 2019.

The China Securities Regulatory Commission office in Beijing. Photo: Simon Song

Shares of Luckin plunged 83 per cent within days to US$4.39 on April 7, when the stock was suspended from trading. The company’s US$400 million worth of convertible bonds have also plummeted, diving to as low as 10 cents on the dollar.

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