Please ensure Javascript is enabled for purposes of website accessibility

Luckin Chairman Resigns From Car Inc. as Fraud Probe Continues

By Jennifer Saibil – Jun 10, 2020 at 10:43AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Charles Lu sold all of his company's shares in Car Inc. last week. Now he has resigned as chairman.

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.

Two cups of coffee.

Image source: Getty Images.

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.

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Luckin Coffee Inc. Stock Quote
Luckin Coffee Inc.
LKNC.Y
$16.02 (-0.71%) $0.12
Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$84.81 (0.76%) $0.64

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.