Chinese regulators have begun an investigation into Luckin Coffee, whose scandal involving fabricated sales figures is seen as risking the trustworthiness of other US-listed companies from China.
Luckin confirmed the probe Monday via Weibo, China’s Twitter equivalent, citing “market regulation authorities” — an apparent reference to the State Administration for Market Regulation, which reportedly is involved at the request of the US Securities and Exchange Commission. The SEC declined to comment.
Footage circulating on the internet in China shows a car belonging to the Beijing Administration for Industry and Commerce — which reports to SAMR — parked outside Luckin’s headquarters in the city, as at least two officials entered the building.
Another video shows two different officials, both uniformed and one wearing a mask, speaking with Luckin employees in a meeting room.
Officials who raided Luckin on Monday obtained the Nasdaq-listed coffee company’s internal records and data, Chinese media reported.
The China Securities Regulatory Commission, which this month promised to investigate the case, told reporters Monday that it also has been in communication with its American counterpart regarding the company.
Read more: Will the latest wave of fraud involving US-listed Chinese firms influence global capital markets?
Luckin, seen as a challenger to Starbucks in China, said on April 2 that an internal investigation found the company to have fabricated RMB 2.2 billion (USD 310 million), or roughly 40% of its annual sales, in 2019.
The scandal affects not just Luckin, but also other Chinese companies listed abroad and those seeking to go public, as it dampens the allure of China’s high-growth startup bonanza.
Luckin, which was founded less than three years ago and has surpassed Starbucks’ China store count, commanded a market capitalization of over $10 billion at one point.
The coffee chain faces class action lawsuits from investors at home and abroad. Its shares had lost over 80% of their value since the probe was revealed and before Luckin halted trading on the Nasdaq.
The CSRC, China’s securities watchdog, has signaled its resolve during the past few weeks to intensify scrutiny of public companies in the country.
“Regardless of the listing location, listed companies should strictly abide by laws and regulations in relevant markets, and fulfill obligations to make truthful, accurate and complete disclosures,” the commission said in a statement released one day after Luckin revealed its internal probe.
The agency said it always has been active in assisting foreign securities regulators, including by providing its American counterpart with audit working papers of Chinese companies listed in the US.
The CSRC said it hopes to bolster cooperation with foreign securities commissions. Beijing also is boosting supervision of companies that are listed or seeking listings at home.
Since June, the commission has completed on-site inspections on 84 companies looking to go public. Another 30 have withdrawn their initial public offering applications during this period, the agency said Friday. Since last year, the CSRC has penalized 18 public companies in China on allegations of accounting fraud.