A group of Chinese investors who lost money on Luckin Coffee have filed the first in a batch of lawsuits to a local court over the beverage chain’s alleged accounting fraud, the lawyer representing them told TechNode Thursday. They are suing the company for making false financial statements that led to investor losses.

The US-listed Chinese company may fall under Chinese courts’ jurisdiction for fraud, thanks to a recent revision to China’s Securities Law. The new law, which came into effect March 1, added a clause that expanded its authority to cover overseas-listed Chinese companies that have domestic investors.

Yang Zhaoquan, director of Beijing Vlaw Law Firm, said it is the first time investors have tried to hold a company accountable in China for fraud perpetrated in US markets. 

He told TechNode that he has sent out documents for the first lawsuit to a court in the southeastern coastal city of Xiamen, where Luckin is headquartered.

Luckin announced on April 2 that a preliminary internal investigation showed that it reported an estimated RMB 2.2 billion ($311 million) worth of phony sales to investors, from the second to the fourth quarter of 2019.

Shares of the company plummeted 75.6% on the disclosure that day. Shares of the company were suspended from trading on April 7. The closing price of its shares was $4.39, only 8.8% of its all-time high.

Luckin did not immediately respond to TechNode’s request to comment on the news.

Read more: Luckin fraud admission leaves more questions than answers

10 suits to come

Vlaw law firm began recruiting (in Chinese) plaintiffs for lawsuits against the company on April 7, looking for Chinese investors and China-based expats who held or purchased Luckin shares from Nov. 13 to April 2.

Yang expects to file a total of 10 independent cases over the coming days, each representing a single investor. The plaintiffs seek to recover the money they lost on Luckin’s stock, as well as commissions paid to brokers, Yang said.

Yang said that one of the investors lost 70% of their investment when the stock crashed.

While the current suits name only Luckin as the defendant, Yang said he and his clients will consider listing auditors and brokers that participated in Luckin’s stock issuance as respondents depending on the development of the cases.

History of fraud

The company already faces lawsuits in the US from law firms that launched investigations into it on behalf of the company’s US investors.

Foreign investors have long complained that Chinese firms listed in the US get away with fraud because of a legal loophole between the two countries: China’s old Securities Law didn’t claim jurisdiction over Chinese companies listed overseas, while US courts and regulators who do have jurisdiction have little to no power to enforce judgments in China.

“In the last 10 years, we’ve been responsible for delisting over a dozen China-based companies for fraud, but nobody has gone to jail, nobody has paid a fine. It is not illegal in China to steal from US investors,” Dan David, the founder of Wolfpack Research, said in an interview with Bloomberg TV on April 7.

On the same day, the US-based short seller and securities analysis firm released a short-selling report, accusing Chinese video-streaming platform Iqiyi of inflating its 2019 revenue by up to 44% and overstating user numbers by up to 60%.

“Prior to this, investors couldn’t claim in China for their losses because of overseas-listed Chinese companies’ financial misconduct,” Yang said. This is the first case trying to achieve that and it could set a precedent that such misconduct has consequences, he said.

However, the new law allows only Chinese and China-based investors to sue in Chinese courts. Most American investors will still count on claiming any cash through US courts.

Unclear jurisdiction 

While the China Securities Regulatory Commission (CSRC), the country’s top securities regulator, denounced Luckin’s financial chicanery, legal experts have questioned whether the company falls under Chinese securities laws’ rule.

Liu An, a securities lawyer at Beijing-based law firm Dentons China, said in an interview with reporters on April 3 that the new law may not apply to Luckin if it can prove that its fraud stopped before the law came into effect this March.

The new Securities Law also added a clause that bans foreign securities regulators from investigating or gathering evidence in China, making formal an obstacle some US investors have complained about for years. The law, however, said foreign regulators can team up with their Chinese counterparts to investigate publicly traded companies.

“The CSRC pays high attention to Luckin Coffee’s financial misconduct and condemns the company for those financial misconduct behaviors. Publicly traded companies, wherever they are listed, should strictly comply with relevant markets’ law and regulations and fulfill their duties of accurately revealing financial information,” the agency said in a statement on March 3.

Cao Yu, vice president of the China Banking and Insurance Regulatory Commission” said on Wednesday that Luckin’s accounting fraud is a “harsh lesson,” while saying that the commission has a “zero tolerance” attitude towards such behavior.

Liu said during the interview that Nasdaq-listed Luckin does not fall under the CSRC’s jurisdiction, so the commission could only release a statement condemning it.

However, the CSRC said in the statement that it would launch an investigation into Luckin Coffee’s alleged financial misconduct “based on arrangements around international securities regulations.”

“It doesn’t seem possible that the CSRC will launch the investigation on its own initiative. It may choose to cooperate with the US Securities and Exchange Commission,” Yang told TechNode.

Writing about semiconductors and telecommunications.

Emma Lee (Li Xin) was TechNode's e-commerce and new retail reporter until June 2022, when she moved to Sixth Tone to cover technology and consumption. Get in touch with her via or Twitter.