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New Details Emerge In Luckin Coffee Accounting Scandal

By Bradley Freeman – May 28, 2020 at 3:22PM

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More news surfaced today on the extent of Luckin's wrongdoing.

Luckin Coffee Inc. (LKNC.Y -5.12%) is in more trouble. This week, new details on the Chinese coffee chain's accounting practices are unfortunately dominating headlines. Why?

Under previous company management, executives purportedly juiced financials by creating vouchers to sell to fake buyers connected to the company. Millions in fake revenue was reported to boost the company's growth metrics and impress shareholders. 

Luckin Logo

Image Source: Getty Images

To complicate things further, the company's newly audited financial statements reveal $140 million in charges for raw materials within just a few months. This number is astronomically high compared to similar business models, pointing to more dishonesty and potentially theft. 

New management

New executives have been brought in the turn the tide; it remains to be seen whether they can do so. It will take time to fully recover from the investor distrust blossoming from this, and new problems keep popping up.

According to reporting from The Wall Street Journal, this company's scandalous behavior began far before its IPO; it took time for the events to be uncovered. 

Fraud pushed Luckin's stock from penthouse to doghouse in a short period of time. From an investor perspective, the news led to trade halting on American exchanges. The stock rapidly erased 90% of its value upon shares reopening.

Pensions, brokerages, and retail investors globally were rocked by this shocking fraud. Today merely brings new details depicting severe malpractice by the company. Luckin has more work to do.

Bradley Freeman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Luckin Coffee Inc. The Motley Fool has a disclosure policy.

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