Ex-Luckin Chairman Loses All His Shares -- WSJ
By Jing Yang
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 15, 2020).
HONG KONG -- Charles Lu, the co-founder and former chairman of
Luckin Coffee Inc., has lost control of all his shares in the
Chinese coffee chain following a recent court ruling, according to
people familiar with the matter.
A court in the British Virgin Islands granted on July 9 an
application by banks to wind up Haode Investments Inc., an entity
controlled by Mr. Lu's family trust that holds Luckin shares, and
appointed KPMG as the liquidator of the assets, according to the
Mr. Lu has 14 days from the date of the ruling to appeal the
decision, some of the people said. He didn't respond to requests
With the court's decision, Centurium Capital, a Chinese
private-equity firm and an early backer of Luckin, has the most
voting rights in the company, thanks to its holdings of so-called
Class B shares that carry 10 times the votes of regular shares.
Centurium now controls about 43% of Luckin's voting rights,
according to a person familiar with the matter and calculations
based on Luckin's filings.
On Monday, Luckin said Mr. Lu stepped down from the chairman
post and is no longer a director on its board after a shareholder
meeting last week. He has been replaced by Jinyi Guo, a longtime
business associate of Mr. Lu's who will also serve as Luckin's
permanent chief executive.
The Wall Street Journal reported last week that Mr. Lu
determined the outcome of the shareholder vote, which has changed
the composition of the company's board of directors.
Mr. Lu, who used to be Luckin's largest shareholder, defaulted
on a $533 million margin loan from banks including units of Credit
Suisse Group AG, Morgan Stanley, Goldman Sachs Group Inc., Barclays
PLC, CICC and Haitong International after a disclosure of
fabricated sales by Luckin caused its American depositary shares to
plunge in value. Luckin's market capitalization topped $12 billion
in January and has since fallen to less than $1 billion.
The three-year-old upstart rival to Starbucks Corp. in China
revealed in April that more than $300 million of its 2019 sales
were fabricated. Luckin has fired co-founder and CEO Jenny Qian and
more than a dozen other employees, and its shares have been
delisted from the Nasdaq Stock Market. They now trade on the
Banks earlier seized and sold some Luckin shares owned by Mr. Lu
and Ms. Qian, and took legal action to wind up other entities in
another offshore jurisdiction that Mr. Lu and his sister
The British Virgin Islands court has also granted creditors'
application to wind up Summer Fame Ltd., an entity controlled by
the family trust of Ms. Qian that holds Luckin shares, the people
familiar with the matter said. She couldn't be reached for
After the ruling and a similar court order last month in the
Cayman Islands to wind up another of Mr. Lu's entities, KPMG, the
court-appointed liquidator, owns about 18% of Luckin's Class A
shares, according to people familiar with the matter and
calculations based on Luckin's public filings.
Mr. Lu and Ms. Qian founded Luckin in 2017 and set out to
challenge Starbucks's dominance in China and get Chinese consumers
hooked on premium coffee. By the end of 2019, Luckin had opened
more than 4,500 outlets across the country and said it was China's
biggest coffee chain by stores, even though its sales fell short of
The Wall Street Journal reported in May that Luckin inflated
sales by booking numerous purchases of vouchers that could be
exchanged for cups of coffee. Some of the companies that bought
such vouchers in bulk, as well as a company that received payments
from Luckin for raw materials, had ties to Mr. Lu, according to the
An internal investigation by Luckin concluded that Mr. Lu "knew
or should have known" of the fabricated transactions, the Journal
previously reported. Mr. Lu denied that in an earlier email to the
Write to Jing Yang at Jing.Yang@wsj.com
(END) Dow Jones Newswires
July 15, 2020 02:47 ET (06:47 GMT)
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