Luckin Coffee drops co-founder Charles Lu Zhengyao as chair of new board, keeps investors guessing on who’s in charge of scandal-tainted chain

15-Jul-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

Luckin Coffee has announced a new board chair and added two more independent directors, leaving questions about who is in charge of the Chinese coffee-chain after burning global investors in an accounting scandal.

The company named Guo Jinyi as board chair in an SEC filing in New York, without saying if co-founder Charles Lu Zhengyao has resigned or been removed during a July 12 board meeting. Guo was also appointed as Chief Executive, after holding the role in caretaker capacity to steady the ship during an internal probe into its scandal.

The board reconstitution came as Luckin Coffee prepares to be booted out from Nasdaq, barely 14 months after its stock debut to great fanfare in New York. An internal probe found several top executives fabricated about 2.12 billion yuan (US$300 million) worth of sales in 2019. The stock has lost 95 per cent of its value, erasing $11 billion from its market value since the revelation in early April.

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The Xiamen, Fujian-based start up chain said it added Cha Yang, a lawyer and president of Tsinghua Education Foundation in New York, and Liu Feng, an accounting professor at Xiamen University, as independent directors at the July 12 meeting, according to its filing late Monday.

The filing came more than a week after the Xiamen, Fujian-based start up, dubbed as China’s Starbucks, went silent on the outcome of a special shareholders vote on July 5 in Beijing to remove four directors. Lu’s position as the board chair was not among the meeting agenda.

The special meeting was requisitioned by Lu’s offshore family trust Haode Investments, which controls 37.2 per cent of voting power in the company.

The scandal has embarrassed Chinese officials who in recent weeks have stepped up their public censure of such shenanigans, calling them a “cancer” in the capital markets. The Financial Stability and Development Committee (FSDC), which is headed by vice-Premier Liu He, has introduced measures to eliminate fraudulent activity, while the nation’s banking and insurance regulator has rebuked banks in the Kingold Jewellery fake gold bars scam.

US regulators have since taken steps to tighten their oversight of Chinese companies listed in US exchanges, including a planned legislation to expel misbehaving companies from its capital markets. Some Wall Street firms, however, are pushing back against the idea.

Lu’s own fortune has been decimated by the scandal, as he faces litigation from lenders seeking to recoup their loans from his family trust. Earlier, local Chinese media reports on the affairs suggested Lu has tightened his grip on the company by installing his “nominees” to the board at the July 5 meeting, purportedly to staunch a deeper probe into the accounting scandal.

Lu had survived a July 2 boardroom revolt after directors called for his resignation to share the blame for the scandal, as recommended by a special committee probing into the accounting fraud. Lu had earlier denied any wrongdoing in the scandal.


Category: China

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