China’s Lakkin Coffee paid $ 180 million for Settling-Fraud claims

But coffee Inc.

LKNCY 1.63%

The regulator has agreed to pay $ 180 million to settle claims that ripen its books to make growth more robust and meet earnings targets.

The Securities and Exchange Commission on Wednesday announced the imposition of the fine, eight months after the Chinese company revealed that some of its executives had signed the sale in 2019. Lakin neither accepted nor denied the SEC’s fraud claims, which were filed in Manhattan federal court. The settlement is subject to federal judge approval.

The SEC said that Lucky intentionally increased retail sales by more than $ 300 million from April 2019 to January 2020. According to the SEC, the company spent 1.3 billion yuan, or $ 196 million, by paying 13 alleged suppliers of raw materials, human resources and delivery services.

The SEC’s findings confirmed the details of the plans reported by the Wall Street Journal in May.

But, once a high competitor for Starbucks Corp in China, went public on the Nasdaq stock market in 2019. Its shares fell 75% earlier this year after financial-reporting failures were revealed. The debacle put headlines on US regulators’ inability to inspect audits of US-listed Chinese companies, a compliance gap that attracted attention in Congress this year.

The SEC’s executives and senior managers were involved in the fraud, the SEC complained in its federal court. The Journal reported that some of the companies involved in the shameless schemes were linked to Lucky’s then chairman and controlling shareholder, Charles Lu.

Mr. Lu stepped down from Lakin’s board in July, and Nasdaq removed Lakin’s shares on July 13. Lucky’s shares are still trading at the counter.

The SEC did not announce any enforcement claims against the individuals on Wednesday, but said in a press release that its investigation is continuing. According to the SEC’s court complaint, the fraud occurred during Lakin’s annual audit.

In a statement, Lakin said the agreement reflected its cooperation and reform efforts. “The company’s board of directors and management are committed to a system of strong internal financial controls, and adhere to best practices for compliance and corporate governance,” said Ginny Guo, Lakin’s current chairman and chief executive officer.

The SEC said the bank’s record was amended to hide misconduct and that Lucky’s revenue grew 45% in a quarter in 2019.

The SEC said the disclosures that the SEC made with the SEC in January 2020 were part of the disclosures that raised $ 418 million from US equity investors and $ 446 million from bond investors.

In September, the Chinese government punished Luckin Coffee and the companies that participated in the fake sales scheme.

Lakin said at the time of its initial public offering in 2019 that it operated 2,370 stores in China and had more than 16.8 million customers. The company’s tremendous growth – it began operations in October 2017 – birthed the story that impressed investors: China was primed for a boom in coffee consumption, and Lakin was positioned to benefit from serving it .

But company officials committed fraud in early April 2019, the SEC said, when two entities linked to employees and Lucky executives and directors bought coupons that were to be used for coffee. The SEC complaint states that the coupons were never used, but Lakin created “fake customer orders in lieu of the coupons” and upheld the recognition of revenue.

In another scheme, which had the majority of the $ 311 million in counterfeit sales, some employees arranged for the sale of coupons to shell companies, which were described within Luckyne, who then sent vouchers to individual customers as agents Will sell from

According to the SEC complaint, a worker involved in that scam emailed: “We will try to change the contact persons.” [of the fictitious agents] With third parties, to reduce the number of our internal partners who are aware of such an issue. ”

Write Dave Michaels at [email protected] and Jing Yang at [email protected]

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