Joint Meeting of the Mid-Atlantic and Northeast Regions

What was Lacking at Luckin? A Case Study of Ethics and Fraud in a U.S. Listed Foreign Company

• In Event: Teaching Case Studies Roundtable

Abstract

This case details fraudulent accounting practices at Luckin Coffee, a China-based retail coffee chain. The company gained prominence with a record Nasdaq-listed IPO in 2019 and fell into disrepute in 2020 as a major fraud was uncovered. An internal investigation revealed employees engaged in improper behaviors, including falsifying transactions data that led to gross overstatements in revenue for the first three quarters of 2019. Luckin was charged with issuing materially false registration statements and prospectuses for its IPO in 2019 and secondary offering in January 2020. The company was delisted from Nasdaq and investigated by the SEC for the accounting fraud. Luckin settled with the SEC in December 2020 for $180 million and has been working to regain investor confidence under new management.

This case provides students an opportunity to analyze fraud and ethical issues in the context of global capital markets. At the introductory level, it can be simplified to give students experience with dissecting the elements of fraud, examining its causes and understanding the consequences of unethical behavior on various stakeholders. For an upper-level course, it can be amplified to include an analysis of the role of auditors, corporate governance and different regulatory regimes in the prevention/detection of fraud.

Authors

• Devon Baranek, Rider University

• Nandini Chandar, Rider University

• Sherry Li, Rider University