China’s top business and commerce regulator is investigating Luckin Coffee Inc., after the Nasdaq-listed coffee chain revealed that much of its 2019 sales were fabricated and caused massive losses for many investors.
More than a dozen officers from the country’s State Administration for Market Regulation raided Luckin Coffee’s headquarters in Xiamen on Sunday, demanding full access to the company’s accounts, transaction records and internal systems, according to a person familiar with the matter. The on-site investigation is likely to continue through the week, the person added.
Luckin confirmed the probe Monday, saying in a statement that it is “actively cooperating” with the market regulator and providing information about its business. The company also said its stores across the country are operating normally. The Chinese regulator didn’t respond to a request for comment.
The probe into Luckin by one of China’s most powerful business regulators marks the most significant action taken so far by Chinese authorities, which earlier this month publicly condemned the upstart coffee chain for its accounting misconduct. It also points to a conundrum facing regulators in both the U.S. and China when it comes to reining in financial misdeeds of U.S.-listed Chinese companies.