Luckin Coffee has settled a US class action lawsuit, resolving some US investors’ claims against the company, which admitted in April 2020 to fabricating $310 million in sales. Settlement amounts will be calculated based on a global settlement of $187.5 million, according to a company statement issued Sept. 19.
Why it matters: The bankrupt company, striving for a business turnaround, is moving a step further to repair its image after the fraud scandal.
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Details: The settlement plan is still subject to approval from courts in the US and Cayman Islands, according to a Tuesday statement from the company, which is registered in the Cayman Islands.
- Luckin’s chairman and chief executive, Guo Jinyi, said this settlement will resolve a “significant contingent liability” for the company, allowing it to “move forward with a greater focus on operations and execution of strategic plans.”
- The company also reported Tuesday in its annual report that revenue increased 33.3% year on year to RMB4.0 billion ($618.1 million) in 2020, despite being hit by the pandemic. The revenue growth was primarily driven by price increases, said the company.
- Luckin operated 3,929 self-operated stores as of 2020, a drop of around 15% year on year from 4,507 stores in 2019. As a result of the ongoing restructuring, the number of the company’s partnership stores nearly tripled to 874 in 2020 compared to 2019.
- Shares of the company, still available on the OTC market after delisting in July, climbed nearly 40% to $15 per share so far this year on business turnaround prospects. That is well below its historic peak of $50 per share reached in January 2020 when it was listed on the Nasdaq.
Context: The fraud perpetrated by the once high-flying coffee chain has made regulators and investors more wary of Chinese tech companies.
- Luckin agreed in December to pay a $180 million penalty to the US Securities and Exchange Commission to settle charges of sales fabrication.
- China’s State Administration for Market Regulation imposed an RMB 61 million fine on Luckin and a group of affiliated companies last September for creating unfair competition by stating fraudulent sales figures.
- Lu Zhengyao, the ousted founder of Luckin, is trying to make a retail comeback with his noodle chain restaurant Qu Xiaomian.