Luckin Coffee Investigative Report

Eleven thousand hours of video footage. 92 full-time investigators. 1,418 part-time staff across 52 Chinese cities. Over 25,000 customer receipts collected. This is what it took to prove Luckin Coffee was fabricating sales—because traditional auditing had completely failed.

The anonymous 89-page report alleged Luckin inflated items sold per store by 69% in Q3 2019 and 88% in Q4. Net selling prices were inflated 12.3%. Advertising expenses were overstated by 150% to create a slush fund for fabricating revenue. Luckin denied everything on February 3, 2020. By April 2, they admitted their COO had fabricated RMB 2.2 billion (US$310 million) in sales.

The methodology matters more than the fraud itself. When a short-seller needs 11,260 hours of surveillance footage to detect fraud that auditors missed, something has broken in the verification ecosystem. Muddy Waters deployed ground-truth observation—literally counting customers walking into stores—because corporate financial reporting had become a game of fabricated signals.

Biologically, this is costly verification. When cheap signals become unreliable, organisms evolve expensive authentication methods. Peacocks grow metabolically costly tails; employers require costly degrees; short-sellers hire 1,500 investigators. The Luckin case demonstrates that as corporate fraud becomes more sophisticated, verification must become proportionally expensive. The market's immune system adapted by outsourcing detection to mercenaries willing to pay the cost.