(Economic Observation) Chinese officials exposed details of Ruixing Coffee's fraud: punishment is far from being settled

  China News Service, Beijing, October 13th, title: Chinese officials exposed details of Ruixing Coffee fraud: punishment is far from being finalized

  China News Agency reporter Wang Qingkai

  The profit-seeking nature of capital determines that once there is an appropriate profit, it will be bold.

This is fully reflected in the "Luckin Coffee Fraud Case".

  In order to pursue profits, Luckin Coffee has recruited 43 "accomplices" and carried out a systematic counterfeiting project for more than a year.

Fake hundreds of millions of orders, inflated revenue, fake transactions, and even forged bank records.

Data map: A pedestrian passes by the Ruixing Coffee Beijing Baoneng Building store.

Photo by China News Agency reporter Hou Yu

  The State Administration of Market Supervision and Administration of China issued on the 12th the administrative penalty decision of the five main participating companies in the "Luckin Coffee Fraud Case", and imposed an administrative fine of 2 million yuan (RMB, the same below) on each of the five companies.

  Public opinion generally believes that the penalty is too light.

Is the "Luckin Coffee fraud case" that has caused a sensation in the world so settled?

Fake orders, fake turnover, fake transactions

  The penalty decision letter shows that in order to gain competitive advantage and trading opportunities, Ruixing Coffee falsely increased the key marketing indicators such as the sales revenue, cost, and profit margin of Ruixing Coffee in 2019.

Under the coordination of other companies, a total of 123 million orders for fake coffee cards and coupons were made.

  From August 2019 to April 2020, the two main companies of Luckin Coffee extensively promoted false marketing data by organizing the "Luckin Coffee Media Communication Meeting" and on their social media channels.

According to statistics, from April to December 2019, Luckin Coffee made a total of 123 million fake coffee card and coupon orders by conducting false transactions, forging bank flow, establishing false databases, and forging card and coupon consumption records.

  The State Administration for Market Regulation believes that the above-mentioned actions of the two companies violated Article 8 Paragraph 1 of the "People’s Republic of China Anti-Unfair Competition Law". The provision of “honor and other commercial propaganda that is false or misleading to deceive and mislead consumers” constitutes false propaganda.

45 companies are involved in fraud

  Such systematic, large-scale, long-term business and financial fraud can be accomplished by Ruixing itself?

  Obviously not.

When investigating the case, the State Administration for Market Regulation also found that more than 40 companies including Beijing Auto World Consulting Service Co., Ltd. and Beijing Shenzhou Youtong Technology Development Co., Ltd. had conspired with Ruixing to commit fraud.

  China News Agency reporters combed through these companies and found that they are more or less related to Lu Zhengyao, the former chairman of Ruixing Coffee, and the Shenzhou Department.

  Industry and commerce information shows that the notified Beijing Shenzhou Youtong Technology Development Co., Ltd. and Beijing Chexing Tianxia Consulting Service Co., Ltd. are all affiliated companies of China.

Lu Zhengyao is the chairman and CEO of UCAR.

  Legal professionals believe that the above-mentioned three companies’ actions violated Article 8 Paragraph 2 of the "People’s Republic of China’s Anti-Unfair Competition Law", “Operators must not organize false transactions to help other operators conduct false or misleading commercial propaganda. "The provisions constitute an aid to false propaganda.

  According to the reporter's understanding, the State Administration for Market Regulation has currently fined 61 million yuan on 45 companies involved in the "Luckin Coffee Fraud Case".

"Boots" have not yet landed tickets will arrive one after another

  Has the "boots" of punishment landed?

Many analysts believe that this is only the first hammer of supervision and punishment.

The above-mentioned penalties are only penalties issued by the State Administration for Market Regulation for false propaganda, and penalties from other departments will continue to come.

  "Luckin Coffee" may receive a fine from the Ministry of Finance.

Earlier, the Ministry of Finance stated that it has basically completed the quality inspection of accounting information since the establishment of the two main operating entities of Ruixing Coffee Company.

The inspection found that from April 2019 to the end of 2019, Ruixing Coffee Company increased the transaction volume by 2.246 billion yuan through the fictitious commodity certificate business.

  According to Article 43 of the "Accounting Law", anyone who forges or alters accounting vouchers, accounting books, or compiles false financial and accounting reports that constitutes a crime will be investigated for criminal responsibility in accordance with the law.

For example, the directly responsible person in charge and other directly responsible persons may be fined 3,000 yuan up to 50,000 yuan, and the accounting personnel shall not engage in accounting work within five years.

  Luckin Coffee may also receive a fine from the tax department.

According to Article 64 of the Tax Collection and Administration Law, if a taxpayer or withholding agent fabricates a false tax calculation basis, the tax authority shall order it to correct within a time limit and impose a fine of less than 50,000 yuan.

  Industry insiders believe that Ruixing's tax credit rating may also be downgraded and listed as a key monitoring object by taxation, increasing the frequency of supervision and inspection.

The taxation department will also recommend that relevant departments restrict or prohibit operations, investment and financing, import and export, production licenses, and qualification reviews.

  The China Securities Regulatory Commission may also impose penalties in accordance with the "Securities Law of the People's Republic of China."

As a U.S.-listed company, in addition to domestic penalties, Luckin may have greater costs from overseas penalties, including fines from the US Securities Regulatory Commission and the American Public Company Accounting Supervision Committee, as well as lawsuits initiated by US shareholders.