The SEC is reportedly investigating Luckin Coffee after discovery that employees fabricated $310 million in sales

• China-based Luckin Coffee is under investigation by the SEC after the company disclosed employees falsified sales throughout last year, The Wall Street Journal reported.
• The Starbucks competitor revealed on April 2 its staff fabricated 2.2 billion yuan ($310 million) in sales from the second quarter to the fourth quarter of 2019. The announcement drove shares 80% lower in one day and led to a trading suspension.
• The SEC may face hurdles from Chinese regulators, as the country has recently implemented new laws that limit overseas compliance with market authorities.
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China-based chain Luckin Coffee is under investigation by the Securities and Exchange Commission after the company revealed its employees fabricated sales in 2019, The Wall Street Journal reported Wednesday.

The SEC's probe hinges on whether Chinese authorities will cooperate. Luckin's headquarters were searched by China's State Administration for Market Regulation last weekend, The Journal reported. China's Securities Regulatory Commission has said it has coordinated with the SEC.

The Starbucks competitor revealed on April 2 that some staff including its chief operating officer falsified 2.2 billion yuan ($310 million) in sales from the second quarter to the fourth quarter of 2019. The disclosure pushed Luckin shares down 80% in a single session and, five days later, prompted a trading suspension by the Nasdaq exchange.

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Luckin announced in its disclosure that the firm will conduct an internal investigation through its board of directors and law office Kirkland & Ellis LLP. The chain suspended individuals involved in the misconduct, according to its April disclosure.

The investigation resurfaces challenges between regulators and Chinese firms staging US stock offerings. The SEC said in an April 21 statement that enforcement of regulatory actions against international firms "may be limited," and cautioned investors to understand the related risks.

China, in particular, has "significant legal and other obstacles to obtaining information" necessary in an investigation, the agency added. The country recently implemented a new law that requires citizens and companies to gain approval from China's market regulators before cooperating with international authorities.

Luckin shares are frozen at $4.39 each, down roughly 89% year-to-date.

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