Luckin Coffee Faked $310 Million in Sales to Look Like the Next Starbucks
A short-seller sent people to count customers in and out of stores by hand. It turned out to be the most reliable accounting Luckin had.
Luckin Coffee went public on Nasdaq in 2019 pitched explicitly as China's answer to Starbucks — thousands of stores, aggressive growth, and sales numbers that impressed investors right up until a short-seller decided to actually go check.
In January 2020, Muddy Waters Research published an anonymous tip alongside its own field investigation: teams that had physically sat outside Luckin stores, filming for hours, counting real customers walking in and comparing that to Luckin's reported sales. Luckin's official response, on February 3, was to dismiss the report outright.
Two months later, on April 2, 2020, Luckin's own internal investigation confirmed it: the company had fabricated roughly $310 million in sales through 2019, using related parties to generate fake transactions, then inflating expenses by another $190 million and building a fake operations database to help the numbers hold up under a normal audit. Shares dropped more than 75% in a single day on the news. Luckin was delisted from Nasdaq in June 2020 and agreed to a $180 million settlement with the SEC that December.
The fraud was thorough enough that catching it required a research team physically counting cups of coffee by hand outside real stores — which is either an inspiring story about diligence, or a fairly damning statement about how little the paperwork could be trusted on its own. Commentators on Chinese business culture would recognize the pattern from the same saying cited elsewhere on this site: néng piàn jiù piàn, "if you can cheat, then cheat" — applied here not to a product, but to the sales figures themselves.
Filed from public reporting:
