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Tuesday, November 23, 2021

Luckin Coffee settles shareholder suit for $175 million

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Luckin Coffee reached a $175 million settlement of shareholder class-action claims that the Chinese rival to Starbucks fraudulently inflated its share price by falsifying revenue.

Lawyers for the shareholders called the all-cash settlement, filed on Monday night, an “excellent result,” citing Luckin’s liquidation proceeding in the Cayman Islands and its related filing for protection under the US Bankruptcy Code.

The accord also covers Luckin officials, and underwriters of the Xiamen, China-based company’s $645 million initial public offering in 2019 and a later offering of American depositary shares.

US District Judge John Cronan in Manhattan approved the preliminary settlement on Tuesday, and scheduled a Jan. 31, 2022, hearing to consider final approval. The settlement also requires approval by a Cayman Islands court.

Luckin denied wrongdoing. Its US-based lawyers did not immediately respond to requests for comment.

Founded in 2017, Luckin ended March with about 5,000 stores.

A Luckin Coffee logo against a background of a coffee bar
The company agreed to a separate fine of $180 million to settle SEC fraud charges in 2020.
Shutterstock / Robert Way

Shareholders sued Luckin in February 2020, two weeks after short-seller Muddy Waters Research accused it of inflating revenue.

Two months later, Luckin’s share price sank 81 percent after the company said an internal probe found that its chief operating officer and other staff fabricated about $310 million of sales in 2019, or about 40 percent of annual sales projected by analysts.

Luckin agreed last December to pay a $180 million fine to settle SEC accounting fraud civil charges.

The SEC said Luckin raised more than $864 million from equity and debt investors while the fraud was taking place.

Shareholders in the class action are led by Swedish pension fund Sjunde AP-Fonden and the Louisiana Sheriffs’ Pension & Relief Fund.

Their lawyers, led by Kessler Topaz Meltzer & Check and Bernstein Litowitz Berger & Grossmann, may seek fees of up to 25 percent of the settlement fund.

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