Can it get any worse for Charles Lu and Luckin Coffee (LKNC.Y -0.71%)? Probably, but as the Luckin accounting probe escalates, so do Lu's woes.
Lu's investment firm, UCAR, which is the parent company of Luckin, already sold off its total stake in Car Inc., China's largest car rental company, amid falling share price due to the Luckin accounting fraud scandal. In a statement to the Hong Kong stock exchange on Wednesday, Lu said he was resigning as chairman of Car Inc. to devote more time to UCAR responsibilities.
Did it come from the top?
The original allegations stated that Luckin falsified and inflated its earnings. According to a report by The Wall Street Journal, the company sold vouchers to companies that did business with Luckin, and that appeared to increase earnings. Chinese news agency Caixin reported that according to unidentified insiders, Lu gave Luckin employees the green light to go ahead with the false reporting. Lu still heads Luckin and UCAR.
At the end of the third quarter of 2019, Luckin had 3,680 stores, which compete with Starbucks' (SBUX 0.76%) 4,351 Chinese stores. China was Starbucks' fastest-growing market before the pandemic hit, and sales have started to grow again as almost all stores have reopened in that region.
Investors are still selling off Luckin shares
Shares of Car Inc. rose 10% in Hong Kong following the news of Lu's resignation. Shares of Luckin, which is back trading on the Nasdaq after being delisted when the fraud news broke, are down 89% year to date after reaching a high of $50 in January.