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Briefing on Regulatory Response to the Financial Frauds Committed by Luckin Coffee and Related Companies
31-07-2020

The financial frauds committed and self-exposed by Luckin Coffee Inc. has attracted wide attention since April, 2020. The Financial Stability and Development Committee under the State Council demanded “zero tolerance” against financial frauds in capital markets. Pursuant to such principle, the CSRC, in collaboration with competent authorities such as the Ministry of Finance (MOF) and the State Administration for Market Regulation (SAMR), carried out investigations into the suspected misconducts of the domestic operating entities, related parties of Luckin Coffee Inc., and relevant third-party companies involved in the frauds. The CSRC has also been collaborating closely with US securities regulators by providing assistance under the multilateral MoU of the International Organization of Securities Commissions (IOSCO).

The aforementioned actions have achieved substantial progress to date. Investigations by competent Chinese authorities found that the domestic operating entities, relevant executives of Luckin Coffee Inc., as well as relevant third-party companies engaged in massive fabrication of transactions, inflation of revenue, cost and expense, and misleading advertisement. Such conducts violate relevant provisions in the Accounting Law and Anti-Unfair Competition Law of the People’s Republic of China. In addition, two NEEQ-admitted companies associated to Luckin Coffee Inc., UCAR Inc. (NEEQ: 838006) and QWOM Digital Technology Co. (NEEQ: 870207), have violated provisions on information disclosure in the Securities Law of the People’s Republic of China. The MOF, SAMR and CSRC will implement administrative sanctions against the misconducts found. The CSRC has recently delivered the advance notice on administrative sanctions to relevant parties. Those who are suspected of criminal offenses will be referred to public security and judicial authorities and held accountable pursuant to law.

It is a common responsibility of securities regulatory authorities of all jurisdictions to crack down on financial frauds in capital markets and protect the legitimate rights and interests of investors. The CSRC will fully uphold the “zero tolerance” stance against capital markets misconducts as directed by the Financial Stability and Development Committee under the State Council, continue enhancing collaboration with domestic and overseas regulatory authorities, carrying on swift and strong regulatory response against financial frauds of various forms. Being always committed to the rule of law over market misconducts, the CSRC vows against indulgence and inaction in order to safeguard fairness, order, integrity of the capital market, and nurture a sound market ecology.



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