Luckin Coffee’s CEO has been terminated at the recommendation of the company’s board of directors as a result of an internal investigation that questioned her involvement in sales fabrication. The investigation was supported by a special committee of independent directors (those who do not maintain an active role in the business). In addition, the chief operating officer, as well as six more employees, have been suspended or placed on paid leave, pending the final results of the investigation. Sales fabrication involves the misrepresentation of a company's actual sales. Luckin Coffee, a Chinese coffee chain, revealed to its investors that up to US$310 million in sales was fabricated last year. The announcement caused Luckin’s stock to fall 80% with trading initially suspended and the stock ultimately delisted from the exchange.
The former CEO, Jenny Qian, was a co-founder and thrust the company into going public, becoming a significant rival to Starbucks. The company has only been in business for two years and operated more than 4,500 locations at the end of 2019, with a stated goal of operating 10,000 stores by 2021. Some Luckin Coffee bondholders have filed a lawsuit stating that company executives were aware of the sales fraud. These investors provided roughly $200 million in convertible bonds and have suffered losses and damages of nearly $156 million. Luckin Coffee raised $400 million worth of convertible bonds in January 2020 that could be exchanged for stock in 2025.
The Luckin Coffee investigations will continue and litigation is expected to increase over time.