Thomas Peter/Retuers
- Luckin Coffee on Friday filed for Chapter 15 bankruptcy protection in New York.
- The proceedings in New York and the Cayman Islands aren’t expected to disrupt its daily business.
- The SEC in December charged the company with defrauding investors and gave it a $180 million fine.
- Visit the Business section of Insider for more stories.
Luckin Coffee on Friday filed for Chapter 15 bankruptcy protection in New York, as it recovers from hundreds of millions of dollars in fines for fraudulent accounting.
The Chinese coffee chain said its bankruptcy proceedings aren’t expected to disrupt day-to-day operations. Luckin will continue “to meet trade obligations in the ordinary course of business, including paying suppliers, vendors and employees,” according to a news release posted on Friday.
Founded in China in June 2017, Luckin positioned itself as a local competitor to Starbucks, opening thousands of stores in its first two years in business. When the company filed for a US-listed IPO in April 2019, it said it had 2,370 stores, and expected to open another 2,500 within the year, Reuters reported at the time.
Starbucks has about 4,000 stores in China.
Between April 2019 and January 2020, Luckin “intentionally fabricated” more than $300 million in retail sales, according to the US Securities and Exchange Commission.
The company created fake transactions with three different purchasing schemes, SEC investigators said. Employees tried to conceal those sales by adding $190 million in inflated expenses, creating a fake operations database, and falsifying accounting records, according to the regulator.
In December, the SEC charged the company with defrauding investors. Luckin agreed to a $180 million fine, according to the SEC. China's financial regulator also fined Luckin and 44 other firms a total of about $9 million for falsifying financial records and misleading the public, Reuters reported.
The company's US stock was delisted from the Nasdaq exchange last summer.
In Friday's Chapter 15 bankruptcy filing, the company said it was negotiating with stakeholders as it attempts to restructure its business. Those negotiations will be coordinated between the US Bankruptcy Court and a court in the Cayman Islands, where the company's liquidators are located, according to the filing.
The SEC said in December that the company's $180 million fine may be reduced based on the amount it pays to US shareholders during its bankruptcy filing. The Chinese government would have to approve payments to US shareholders, according to the SEC.
"The settlement with Luckin is designed to help ensure that harmed investors have the best available opportunity to receive relief," Carolyn M. Welshhans, associate director of the SEC's Division of Enforcement, said in a statement.
Luckin's coffee is still popular in China, where sales grew 35.8% in Q3, according to Luckin.
On January 7, CEO Jinyi Guo said in a statement: "Luckin Coffee remains focused on growing its core coffee business and is committed to its long-term growth targets."