Chinese company Centurium Capital takes control of Luckin coffee
A Chinese private equity firm has become the majority shareholder of Luckin Coffee Inc.,
after buying shares that were previously held by the founders of the scandal-ridden company.
A consortium led by Centurium Capital, a Beijing-based investment firm that was an early backer of Luckin, now owns more than 50% of the voting rights in the Chinese coffeehouse chain, according to a regulatory filing. Thursday. The group recently acquired shares that belonged to Luckin’s former chairman, Charles Lu, and its former chief executive, Jenny Qian.
The filing does not specify how much the consortium, which also includes investment firms IDG Capital and Ares SSG Capital Management, paid for the shares.
“We will continue to support Luckin’s long-term growth and development,” Centurium said in a statement Thursday.
Ms Qian was fired by Luckin in May 2020 after the company discovered some employees had fabricated more than $300 million in sales. Mr. Lu was ousted soon after.
Luckin, which is incorporated in the Cayman Islands and runs a large coffee shop chain in mainland China, was subject to what is called a “provisional liquidation”, a type of legal restructuring.
Mr. Lu and Ms. Qian lost control of their Luckin shares in the summer of 2020, after the former president defaulted on a $533 million margin loan from the banks to which the shares had been pledged . A court in the British Virgin Islands appointed KPMG as liquidator of the assets.
The upstart coffee chain’s US certificates of deposit had plunged in value in the spring of that year, after Luckin revealed that part of its income had been made up. In May 2020, The Wall Street Journal reported that Luckin had inflated sales by reserving many purchases of vouchers that could be redeemed for cups of coffee and fabricating vendor contracts to help mask chicanery.
The Journal’s reporting showed that some of the companies involved in the fraud had ties to Mr. Lu. Investigations by regulators in the United States and China later corroborated many of the Journal’s findings. Later that year, Luckin accepted a $180 million fine from the United States Securities and Exchange Commission. The company was also delisted from the Nasdaq stock market.
An independent investigation commissioned by Luckin’s board of directors into accounting malfeasance separately concluded that Mr. Lu knew or should have known of the fabricated transactions, the Journal previously reported.
Mr. Lu maintained that he was unaware of the fraud. Shortly after leaving Luckin’s board, he attempted—and failed—to retain control of the company by appointing new directors to his board. Mr. Lu declined to comment via his attorney.
Luckin is currently headed by Guo Jinyi, an early employee of Luckin, who took over as general manager when Ms. Qian was fired and became chairman after Mr. Lu was ousted.
In January 2021, Mr. Lu, along with some Luckin employees, sent a petition to the company. Their letter accused Mr. Guo of corruption, embezzlement and incompetence.
Luckin’s board of directors set up an independent panel which investigated the allegations, with the assistance of outside lawyers and forensic accounting experts. The company said the following month that the probe found ‘no evidence to support misconduct’ by Mr. Guo, and that some members of Luckin’s former management were behind the petition.
Luckin’s accounting scandal had previously created problems for Centurium, which was seen as a rising star in Chinese private equity circles.
The company was founded by David Li, former head of Asia at global private equity firm Warburg Pincus and former investment banker at Goldman Sachs and Morgan Stanley. Luckin’s inflated sales disclosure came just as Centurium was set to raise $2 billion for a new fund. As a result, the company had to postpone its fundraising plan, the Journal reported at the time.
In mid-2021, Centurium relaunched fundraising and pocketed more than $700 million for the new fund from a group of international investors, according to a person familiar with the matter.
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