Luckin Coffee Ends CEO Probe, Finds No Misconduct Evidence

A month-long investigation by Luckin Coffee into its current CEO found no evidence of misconduct, Reuters reported Wednesday (Feb. 17).

The investigation was launched following allegations by some of the company’s employees, according to the news report.

CEO Jinyi Guo took over from Charles Zhengyao, the company’s co-founder and chairman, who was ousted last year amid an internal fraud investigation.

The coffee chain’s rapid expansion ground to a halt last year due to an official investigation into it overstating 2019 revenue and understating net loss, Reuters said. This resulted in a penalty of $180 million to settle the fraud charges raised by Chinese regulators.

Luckin filed for Chapter 15 bankruptcy protection in the U.S. on Feb. 5. The Beijing-based company, which is publicly traded in the U.S., filed the bankruptcy petition with the U.S. District Court for the Southern District of New York.

“The company is negotiating with its stakeholders regarding the restructuring of the company’s financial obligations, to strengthen the company’s balance sheet and enable it to emerge from the Cayman proceeding as a going concern, for the benefit of all stakeholders,” Luckin Coffee said in a statement.

Luckin, often referred to as the Starbucks of China, is looking to the U.S. district court to recognize its court action pending before the Grand Court of the Cayman Islands. Luckin Coffee said the U.S. Chapter 15 proceedings are a key part of its proposed restructuring.

The company said its shops in China remain open and that the Chapter 15 filing should not affect daily operations. It added that it is still paying its employees, vendors and suppliers.

Last May, Luckin fired its CEO and chief operating officer after its internal fraud probe.

Then, in September, China’s top regulator, the State Administration for Market Regulation, fined the coffee chain, saying the company inflated its sales and expenses. The regulator also fined 43 other companies it said helped Luckin to do that.