Surviving the U.S. Market storm: How Luckin Reset Its Foundations
This article is Part 2 of the eight-part chronicle on Luckin Coffee’s rise, collapse, and reinvention. It is the excerpt of a sharing by Luckin Coffee CEO Guo Jinyi in 2024, translated into English here.
You can also read the other parts of the series here: Part 1, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8
Why was Luckin’s situation so easily exposed in the U.S. capital markets at the time?
In fact, the U.S. has several mechanisms that are highly effective in preventing financial fraud. These mechanisms leverage market forces to mobilize every possible entity to oversee a company.
First, the short-selling mechanism.
Those who shorted Luckin were not enemies of the company; short selling is their survival strategy and a legitimate business practice. They look for companies with illogical, rapid, one-sided growth, thoroughly examine financial statements, analyze offline stores and logistics operations, and then conduct precise analysis and take action to profit through short selling.
Second, whistleblower incentives. Internal whistleblowers who report financial fraud can receive rewards of tens of millions of dollars.
Third, class-action lawsuits and financial accountability. These measures ensure that anyone involved in financial fraud faces financial ruin, disgrace, and even imprisonment.
This series of mechanisms ensures that financial issues are promptly uncovered. It is something our financial regulatory system could learn from.
How Did Luckin Coffee Turn Things Around?
Luckin Coffee was neither the first Chinese company to encounter financial issues in the U.S. capital markets, nor will it be the last, but it is certainly the most unique.
In the past, most Chinese companies facing financial fraud issues in the U.S. market would simply withdraw without attempting to negotiate or fulfill their responsibilities.
However, from the very first day the fraud was exposed, Luckin sought to conduct a thorough investigation, draw a clear line with the past, and engage in continuous negotiations to resolve the issue within the U.S. regulatory framework.
By December 2020, we had reached a settlement with the U.S. Securities and Exchange Commission (SEC). Under the U.S. financial fraud litigation framework, we completed the settlement and compensation for the class action lawsuits.
As of now, all overseas settlements have been fully resolved. This process involved liquidating the shares of former shareholders and introducing new investors.
The most critical aspect of resolving Luckin’s issues at the time was addressing the ownership structure.
If the shareholders involved in the fraud had retained their shares in Luckin, the company would have had no chance of making a comeback, nor could it have regained the trust of capital markets and investors.
Fortunately, the original shareholders’ shares were pledged, then liquidated and auctioned, allowing new shareholders to take over.
Luckin’s current controlling shareholder is Centurium Capital, which owns nearly 40% of the company. Centurium Capital was also an early investor in Luckin.
Why did we stay with the company?
For both Luckin’s core team and Centurium Capital’s chairman, Li Hui, if Luckin had failed at that time, we would have either been seen as fraudsters or fools—either having participated in the fraud to deceive the public or proving that the business model was fundamentally unworkable.
We persevered with fearless determination, determined to save the company with no other way out.
Following the scandal, Centurium Capital injected over $700 million (nearly 5 billion RMB) into Luckin.
However, they did not send a single executive to take control of the company. Luckin’s CFO, HR, and CEO remained unchanged, aside from some new hires brought in through normal recruitment processes—many of the original team members stayed.
This demonstrates both the generosity of our shareholders and their trust in the management team, which also indicates that the team performed well under scrutiny. Nonetheless, we actively engage with shareholders to discuss the company’s future.
Once our equity structure stabilized, we could focus on internal governance.
Time proves everything; we simply focus on doing things right.
[Next part: Culture, people and technology]
You can also make reference to the following Momentum Works reports and articles for more:
- Inside Luckin Coffee
- Coffee in Southeast Asia
- Chinese F&B in Southeast Asia
- Quick Commerce in China 2025
- Food delivery in Southeast Asia 5.0
