Chinese top market regulators have launched a probe into Luckin Coffee, the troubled beverage chain under public scrutiny after admitting accounting fraud in April.

Why it matters: An investigation into Luckin by China’s most powerful business regulatory agencies is a sign that the country is intensifying efforts to hold the coffee firm accountable for its misconduct.

  • The case is now also under the jurisdiction of local courts after a group of Chinese investors who lost money on Luckin Coffee filed a batch of lawsuits to a court in the southeastern city of Xiamen, where the company is registered.
  • Luckin’s astounding fraud admission has put more US-listed Chinese companies in regulator and short-seller crosshairs.

Details: More than a dozen officers from the country’s top regulators including the China Securities Regulatory Commission, the State Administration for Market Regulation, and the State Taxation Administration raided Luckin’s Beijing headquarters on Sunday, Bloomberg reported citing people with knowledge of the matter.

  • Luckin Coffee confirmed the investigation in a Weibo post on Monday, adding that it was “actively cooperating” with the regulator, and that its stores across the country were operating normally.
  • Under the International Organization of Securities Commissions memorandum of understanding, China Securities Regulatory Commission (CSRC) has provided audit working papers for 23 overseas-listed companies to relevant monitoring institutions, according to CSRC. Of the total, the working papers from 14 companies were handed to the US Securities Exchange Committee (SEC) and the Public Company Accounting Oversight Board.

Context: Luckin Coffee disclosed in a filing to the SEC on April 2 that several employees including its COO had fabricated transactions for much of 2019.

  • The falsified sales amounted to an estimated RMB 2.2 billion ($310 million). The news sent the company’s shares down 75% the day of its filing.
  • In January, short-seller Muddy Waters Research tweeted a link to an anonymous report which claimed that the coffee chain was defrauding investors by fabricating operational and financial numbers.

Emma Lee

Emma Lee is Shanghai-based tech writer, covering startups and tech happenings in China and Asia in general. We are looking for stories related to tech and China. Reach her at lixin@technode.com.