THE firings of Luckin Coffee Inc.’s chief executive officer (CEO) and her lieutenant in an escalating scandal over faked transactions is another body blow for the Chinese coffee chain, which expanded at breakneck speed trying to supplant Starbucks Corp. as the dominant barista in a booming coffee culture.

CEO Qian Zhiya and chief operating officer Liu Jian were terminated and also resigned their board positions, according to a Tuesday filing by the U.S.-listed company. Six others were either suspended or placed on leave. Guo Jinyi, a board member and senior vice president, was named acting CEO.

The dismissals reflect the increasing turmoil at a company once considered among China’s brightest growth stories. The Xiamen-based retailer faces scrutiny from regulators in the United States and China, and the firings of top executives signal the financial wrongdoing may be more deeply rooted.

“Qian’s departure is a signal Luckin wants to send to investors and regulators that the company is saying goodbye to the past and hopes to get operations back on track again with the new management team,” said Jason Yu, Shanghai-based general manager of Kantar Worldpanel, a consumer industry consultant.

That may be even more difficult if Luckin Coffee didn’t repay a 45 million yuan (US$6.3 million) loan from Zhongguancun Science-Tech Leasing Co. by the March 31 deadline. The company pledged more than 1,000 coffee machines as collateral, according to Tianyancha, a website providing company registration information. Luckin Coffee didn’t immediately return a request for comment.

Guo has been a Luckin Coffee director since June 2018 and served as senior vice president in charge of product and supply chain since October 2017. The company also named two new board members.

Luckin’s shares have been halted for more than a month after the company said it was investigating whether senior officials were involved in fabricated transactions of about 2.2 billion yuan (US$310 million). That announcement sent shares plummeting more than 75 percent in a single trading session.

Luckin Coffee, founded in 2017, raised US$645 million in its U.S. IPO last year and counted BlackRock Inc. among its backers. Its strategy against Starbucks was to open more stores in two years than the Seattle-based firm has in two decades.

CEO Qian and chairman Lu Zhengyao employed a strategy they used with CAR Inc., a vehicle rental business, more than a decade ago: burning money — US$130 million in a year — from investors to grab market share quickly. The company lured patrons with generous discounts: first-time customers got a free cup of coffee and six vouchers for 50 percent off future purchases.

While that raised concerns among some analysts, the strategy proved successful in boosting the stock price. In January, shares reached US$50, more than double its IPO price.

Luckin Coffee operated about 4,500 stores in China by the end of 2019, with plans to reach 10,000 locations by the end of next year in a market valued by Euromonitor at US$5.8 billion in 2018.

Trouble emerged earlier this year, however. The shares plunged after Muddy Waters tweeted Jan. 31 that it had a short on the stock after receiving what it called a “credible,” unattributed 89-page report that alleged accounting issues with the chain and a broken business model. Luckin Coffee denied the allegations.

Getting the firm back on track may be a daunting challenge. Luckin has released only two quarters of results, the most recent in November, when it reported better-than-expected revenue and said it plans to break even this year, even as its net loss widened. (SD-Agencies)