Tainted Luckin Coffee's boss gets reprieve until Sunday

Luckin Coffee Inc. said Charles Zhengyao Lu will remain chairman of the board after an effort to oust him did not gain enough support, in a sign that the company won’t easily be able to move past an accounting scandal that’s made its stock worthless, Bloomberg report.

The proposal to remove Lu from the coffee chain he founded was not approved by two-thirds of the directors present at a special meeting Thursday, Luckin said in a statement.

The Chinese company had said June 26 that a majority of directors had requested his resignation after an internal investigation. The reprieve could be temporary: an extraordinary general meeting scheduled for Sunday in Beijing will see shareholders vote on eight resolutions, including one to remove Lu as a director.

The public tussle for control underscores the challenges the Xiamen-based company faces as it fights for survival. Once considered among China’s brightest growth stories, the chain is now under investigation by Chinese and U.S. regulators for fabricated transactions.

The company said earlier this week its internal investigation concluded that net revenue last year was inflated by about 2.12 billion yuan (US$300 million) while costs and expenses were boosted by 1.34 billion yuan.

Luckin’s fall has ensnared banks including Credit Suisse Group AG and Morgan Stanley as they face a US$300 million shortfall on margin loans made to Lu.

The scandal is also a black eye for China as the U.S. Congress moves closer to passing legislation that could bar Chinese companies from trading on U.S. stock exchanges. Luckin said it would fire a dozen workers and discipline 15 others following the internal investigation. It already dismissed CEO Jenny Zhiya Qian, COO Jian Liu and some employees who reported to them in May after uncovering the scheme that funneled funds to the company from several third parties with links to the participants.

The board said it fired the executives based on evidence showing their participation in the false transactions.

The board had sought Lu’s removal on the recommendation of a special committee based on its investigation, and an assessment of Lu’s cooperation in the internal investigation, according to Wednesday’s statement.