It is apparently not enough for Luckin Coffee (LK 3.30%) to conduct an internal investigation over Chief Operating Officer Jian Liu's inflating of the company's sales figures. A report published Wednesday in The Wall Street Journal, citing "people familiar with the matter," indicates that the Securities and Exchange Commission (SEC) has also launched an investigation to the alleged malfeasance.
Complicating the matter is the fact that Luckin, although it is listed on the Nasdaq, is headquartered and conducts much of its business in China. An effective investigation, then, would likely have to involve the company in some way, in addition to relying on cooperation from Chinese regulators and financial investigatory bodies.
Last weekend one such regulator, the State Administration for Market Regulation, raided Luckin's headquarters in the city of Xiamen.
Image source: Getty Images.
Neither Luckin nor the SEC has commented on the Journal article.
The accounting scandal broke wide open earlier this month, when following accusations by a short seller the company admitted that its sales numbers from last April through September were, in fact, exaggerated by 2.2 billion yuan. That was the equivalent of over $300 million and represented the bulk of revenue reported at the time. Since then, the company has suspended Liu; that internal investigation is ongoing.
The Nasdaq suspended trading of the stock on April 7 because of the scandal. Before the halt, they were among the worst-performing consumer goods titles in 2020 on any American market -- year to date they had shed nearly 90% of their value, far worse than the 5% decline of the S&P 500 over that stretch.
