(Bloomberg) – Luckin Coffee Inc. President Charles Zhengyao Lu was kicked out by shareholders of the scandal-ridden Chinese company just days after surviving an effort by some directors to strip him of control, Chinese website 163. com reported, citing unidentified sources.
Three other board directors, including Sean Shao, were also removed at an extraordinary shareholders meeting in Beijing on Sunday, according to the report, and Ying Zeng and Jie Yang will be added as independent board directors.
A company representative did not immediately respond to a request for comment.
The removal of Lu is the culminating step in a major top management restructuring since the manufactured transactions dating back to April 2019 came to light earlier this year. The coffee chain already fired its CEO and COOs, among other employees, in May when it was investigated by Chinese and US regulators.
The result of the vote ended with a temporary postponement for Lu, who remained president after a proposal to remove him from the startup he founded was not approved by the required two-thirds of directors at a special meeting on Thursday. In accordance with Luckin’s Bylaws, a director may be removed by shareholders or other directors on the board.
Luckin’s executive reorganization is an unusual case in China, where it is rare for a private company to expel a founder and president, who is considered the soul of the company. Lu and others were eliminated in an attempt to distance the company from the financial scandal and allow it to continue operating more normally.
Lu’s dismissal comes after Luckin said he had substantially completed an internal investigation into the financial wrongdoing. Once regarded as one of China’s brightest growth stories, the chain has seen its shares become almost useless, falling 94% this year.
The company said last week that its internal investigation concluded that last year’s net income inflated by around 2.12 trillion yuan ($ 300 million) while costs and expenses increased by 1.34 trillion yuan. After the conclusion of the investigation, most of the directors had requested Lu’s resignation.
Banks face $ 300 million deficit in lucky margin loans
Luckin’s downfall has trapped banks, including Credit Suisse Group AG and Morgan Stanley, as they face a $ 300 million deficit in margin loans made to Lu. The scandal is also a black eye for China Inc. as the US Congress moves closer to passing legislation that could prohibit Chinese companies from trading on the US stock exchanges.
Luckin said he would fire a dozen workers and discipline 15 others after the internal investigation. He has already fired CEO Jenny Zhiya Qian, COO Jian Liu and some employees who briefed them in May after discovering the scheme that channeled funds to the company from various third parties with links to participants. The board said it fired the executives based on evidence showing their involvement in the bogus transactions.
Lu became a billionaire after his fast-growing Chinese chain went public in the United States, but much of his wealth was wiped out by Luckin’s drop in stocks. Last month, Lu resigned as president of Car Inc., China’s largest car rental fleet operator, as scrutiny increased over Luckin and the accounting scandal. A Beijing court has frozen Lu’s entire stake in Car Inc.’s parent, UCAR Inc., for legal reasons.
It has come in for criticism for applying an aggressive cash-burning expansion strategy to all its startup projects, as the model helps to rapidly expand business and gain market share at the expense of profitability.
Luckin, founded in 2017, raised $ 645 million on its US IPO last year and counted BlackRock Inc. among its sponsors. She aimed directly at Starbucks Corp. in China, with a strategy to open more stores in two years than the Seattle-based heavyweight in two decades.
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