On 2 April 2020, Luckin Coffee announced that an internal investigation found that its chief operating officer, Jian Liu, had fabricated the company's 2019 sales by "around RMB2.2 billion" (US$310 million). [32] [33] The next day, the China Securities Regulatory Commission said that it would investigate the company for fraud. [34] On 8 April, the U.S. stock market halted trading on all Luckin shares over the fraud probe. [35] In the month of April, the company's stock fell by over 80%. [36] In mid-April 2020, American investment bank Goldman Sachs announced that it would seize and sell the Luckin stock holdings of the company's chairman, Lu Zhengyao, after he defaulted on a $518 million margin loan. [36]

False inventory was generated by packaging bricks as finished products and shipping them to distributors at the end of the year, so that they would be in transit at the time of the 1987 fiscal inventory. A computer program was created that would generate fictitious inventory serial numbers for the boxes of bricks. The program was named “Cook Book.” After the inventory the company called the distributors and requested that they return the products that have been shipped to them by mistake. Obsolete parts from the Longmont warehouse were shipped to MiniScribe’s plants in Singapore and Hong Kong. Together with scrap in obsolete parts that had accumulated in Singapore and Hong Kong, they were repackaged and labeled as active parts, which were then included in the 1987 inventory at those Far East locations.