Embattled Chinese coffee chain Luckin (NASDAQ: LK) announced on April 29 it will not able to file its 2019’s annual report as scheduled in a filing with the Securities and Exchange Commission (SEC). The firm cited the COVID-19 outbreak and an ongoing internal investigation amid the probe over its accounting misconduct, conducted jointly by SEC and the China Securities Regulatory Commission (CSRC), as the reasons for the delay.
Once touted as China’s Starbucks challenger, Lucking admitted to fabricating USD 310 million in sales on April 2, which has created significant anticipation for its 2019 annual report as it might reveal the coffee company’s genuine sales performance in the past year.
However, the coffee chain announced on Wednesday in its Form 6-K a delay of undetermined time in preparing the financial report, the deadline for which is April 30, caused by nationwide quarantine controls and travel restrictions imposed by the Chinese government in the midst of the pandemic.
“Due to these measures and restrictions, the Company has had limited access to its office buildings with certain employees required to complete 14-day quarantine periods before resuming on-site work,” reads the document.
Another reason, according to Luckin, is the pending internal investigation related to its accounting fraud. Overseen by law firm Kirkland & Ellis LLP, the investigation was disclosed on April 2 when Luckin said former chief operating officer, Jian Liu, and several other employees are believed to lead the misconduct.
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The SEC has also been investigating Luckin, the Wall Street Journal reported yesterday, citing sources familiar with the matter. However, according to the report, the SEC’s ability to thoroughly investigate the reported misconduct at the Xiamen-based coffee company will depend on how much information is shared by Chinese regulators and its ability to enforce investor-protection laws across national borders is limited.
CSRC said on April 27 that it has been always actively collaborating with SEC and Public Company Accounting Oversight Board (PCAOB).
A revised Security Law, which took into effect since March, gives China’s securities regulator the power to regulate domestic companies’ overseas activities if they harm the interests of domestic investors.
Last weekend, Luckin’s headquarters in Xiamen were reportedly raided by the State Administration for Market Regulation, which sought access to the company’s accounts, transaction records, and internal systems.
Luckin announced on Weibo on Monday that the firm “is on active coordination with the market regulation authorities. The company and all stores are operating as normal.”