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Luckin Coffee Board Fails in an Attempt to Remove Chairman

By Eric Volkman – Jul 3, 2020 at 8:56PM

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Charles Zhengyao Lu will stay in his position at the scandal-plagued company.

Charles Zhengyao Lu is keeping his job at Luckin Coffee (LKNC.Y 0.95%), the company announced in a regulatory document filed after market hours on Thursday. Its board of directors held a meeting to remove him as board member and chairman, but the board did not gain the two-thirds majority needed to eject Lu.

The move will be seen as the latest setback for the troubled Chinese coffee maker and retailer. This cascade of problems began early this year with the revelation that it inflated the equivalent of several hundred millions of dollars in both revenue and expenses. The CEO and COO at the time, Jenny Zhiya Qian and Jian Liu, respectively, were both fired as a result.

Coffee spilling from a cup.

Image source: Getty Images.

Subsequently, in a related controversy involving Lu, a private company he controlled defaulted on a $518 million margin loan provided by a syndicate of banks. The loan was collateralized by 611 million Luckin Coffee shares, which were seized by the banks. 

Finally, the precipitous drop in the company's share price led Nasdaq to delist the stock; it now trades over the counter.

Meanwhile, an internal investigation into the scandal found that Qian and Liu were involved in the malfeasance, in addition to lower-ranked employees and outsiders. Luckin Coffee said it has fired 12 employees over this, and will discipline 15 more. The company is also ending its relationships with the outside entities that participated.

On Thursday, Luckin Coffee's shares declined by almost 3.5% in contrast to the gains enjoyed by the wider stock market.

Eric Volkman 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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