- The Securities and Exchange Commission charged China-based Luckin Coffee with misstating its revenue, expenses and net operating loss to make it look like it was growing faster than it was.
- The company agreed to pay $180 million as part of its settlement.
- "Luckin allegedly materially overstated its reported revenue by approximately 28% for the period ending June 30, 2019, and by 45% for the period ending Sept. 30, 2019," the complaint said. "Luckin's disclosures to investors about its revenues were false," said Carolyn Welshhans, associate director of the SEC's enforcement division.
The company, whose shares stopped trading on Nasdaq in July, falsely claimed more than $300 million in retail sales from at least April 2019 through January 2020, the SEC said.
The company allegedly used related parties to create transactions through purchasing schemes. "Luckin employees attempted to conceal the fraud by inflating the company's expenses by more than $190 million," the SEC said, which created "a fake operations database, and [involved] altering accounting and bank records to reflect the false sales."
The company also overstated its reported revenue and expenses and understated its net loss in its financial statements, the SEC said.
During period in question, the company raised more than $864 million from debt and equity investors.
The agency credited the company for self-reporting the problem after it was discovered by external auditors.
"Luckin reported the matter to and cooperated with SEC staff, initiated an internal investigation, terminated certain personnel, and added internal accounting controls," the complaint said.
The agency also credited the China Securities Regulatory Commission and the Swiss Financial Market Supervisory Authority for their cooperation in the investigation.
“While there are challenges in our ability to effectively hold foreign issuers and their officers and directors accountable to the same extent as U.S. issuers and persons, we will continue to use all our available resources to protect investors when foreign issuers violate the federal securities laws," Stephanie Avakian, director of the SEC's enforcement division, said in a statement.
The settlement permits the company to offset its penalty through payments to security holders, subject to approval by Chinese authorities.
More findings could be forthcoming; the investigation isn't closed yet, the SEC said.