What Was Lacking At Luckin? A Case Study Of Ethics And Fraud In A U.S. Listed Foreign Company

This case provides students an opportunity to analyze fraud and ethical issues in the context of global capital markets. Luckin Coffee, a China-based retail coffee chain, gained prominence with a record IPO in 2019 and fell into disrepute the next year as a major fraud was uncovered. An internal investigation revealed employees engaged in improper behaviors, including falsifying transactions data that led to gross overstatements in revenue for the first three quarters of 2019. Luckin was charged with issuing materially false registration statements and prospectuses for its IPO in 2019 and secondary offering in January 2020. The company was delisted and investigated by the SEC for the accounting fraud, settling for $180 million in December 2020. This is a multi-purpose case with an abbreviated version (Question Set A) appropriate for an introductory financial accounting course, and an extended version (including Question Set A and Question Set B) appropriate for an upper-level or graduate course in financial accounting or fraud/forensics. Prior classroom instruction on the navigation of the SEC’s Edgar database, the PCAOB and the U.S. regulatory framework, and Yahoo Finance or another stock price tracking website may be beneficial at the higher course levels. The case should be assigned as a group project due to its length and required level of analysis. Students at all levels should be given at least one full class period (60-90 minutes or more) to work on the case and an additional one to two weeks outside of class to complete the questions. Classroom discussion after the due date should be at least one hour.