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Accounting Fraud Watch: Luckin Cleans House, Wirecard’s Woes, Ex-Penn West Execs Pay Up

Luckin Coffee sacks CEO, COO for alleged fraud [Reuters]
Chinese coffee chain and Starbucks wannabe Luckin Coffee fired its CEO Jenny Zhiya Qian and COO Jian Liu following an internal investigation on the fabrication of annual sales numbers, the company said on May 12.

Luckin revealed in April that much of its 2019 sales of about 2.2 billion yuan ($310.77 million) were fabricated by its COO and other employees, who had been suspended while the company carried out its investigation.

The embattled coffee chain said it has been cooperating with and responding to inquiries from regulatory agencies in both the U.S. and China, who began an investigation into the company last month.

Qian and Liu were also removed from the company’s board of directors.

External auditor: EY

Wirecard hit by shareholder lawsuit over disclosures [Financial Times]
Andreas Tilp, one of Germany’s most prominent securities lawyers, has filed an investor lawsuit against Wirecard, accusing the payments group of “false, omitted and incomplete” disclosures.

The lawsuit, which was filed to a regional court in Munich on May 12, claims that the findings of a KPMG special audit showed that Wirecard for years had experienced a “massive shortfall in compliance” that it had been obliged to disclose to shareholders early on.

Germany’s financial watchdog BaFin said last week that it was reviewing Wirecard’s public statements in the run-up to the audit’s publication in its ongoing probe into potential market manipulation. Before the report was published, Wirecard repeatedly said that KPMG had found nothing fishy.

However, the KPMG report describes shortfalls in Wirecard’s internal organisation and governance. Moreover, the auditors could not verify that sales and profits from third parties at the heart of whistleblower allegations of accounting fraud ever really existed.

External auditor: EY

SEC settles with former top finance executives of oil and gas company [SEC]
Former Penn West Petroleum CFO Todd Takeyasu and ex-vice president of accounting and reporting Jeffery Curran agreed to settle charges arising from an accounting fraud at the Canadian public oil and gas company.

From 2012 through 2014, Penn West, now known as Obsidian Energy, improperly classified certain operating expenses as capital expenses in order to lower a key publicly reported metric concerning the cost of oil extraction and processing, according to the SEC. This accounting trickery wasn’t disclosed to the company‘s external auditor, KPMG, and caused Penn West’s financial statements to be materially inaccurate.

In September 2014, Penn West publicly reported that it would restate its financial statements from 2012 to the first quarter of 2014 and that its historical financial statements and related audit reports could no longer be relied upon. The company and Waldemar Grab, a former operations controller at Penn West, previously settled SEC fraud claims.

Takeyasu and Curran agreed to settle without admitting or denying allegations and also agreed to permanent bans from future violations of federal securities laws.

As part of the settlement, Takeyasu will reimburse Penn West $54,755 and pay a $100,000 civil penalty. Curran will pay a $55,000 civil penalty.

External auditor: KPMG

Florida business lender accused of accounting fraud settles with SEC [Reuters]
Miami-area direct lending firm TCA Fund Management Group and its affiliates reached a settlement with U.S. securities regulators over allegations of fraudulent revenue recognition that inflated the value of its private funds, according to a judgment entered in Miami federal court on May 13.

TCA, which lent money at high interest rates to small businesses, allegedly inflated the net asset value of its private funds by at least $130 million as of November 2019, when assets were reported to be $516 million overall, according to the SEC complaint.

The TCA entities, including its flagship TCA Global Credit Fund GP Ltd., consented to a permanent injunction on additional violations of securities law and the appointment of a receiver, without admitting or denying the allegations. TCA may also pay the disgorgement of ill-gotten gains and civil penalties, according to the judge’s order.

External auditor: Grant Thornton

China blacklists six executives linked to $4.2B fraud (Bloomberg News/AT)
China’s securities regulator blacklisted six executives for their role in a $4.2 billion accounting scandal at Kangmei Pharmaceutical Co., one of the country’s biggest drugmakers.

The ban includes Kangmei’s chairman at the time and five others, who won’t be allowed to participate in the securities market or take positions as executives or board members at any listed company for at least 10 years, Kangmei said in a stock-exchange filing last week. The China Securities Regulatory Commission also ordered the company, a producer of traditional Chinese medicines, to pay a 600,000 yuan ($84,510) fine.

After a months-long regulatory probe into its finances, Kangmei said in May last year that it had overstated its cash positions by 29.9 billion yuan using false documents and transaction records—an amount one lawyer said was unprecedented in China. The firm admitted to “serious” deficiencies in its corporate governance and internal controls.

External auditor: N/A