(Yicai Global) July 16 -- Luckin Coffee’s auditor, Ernst & Young Hua Ming, said it did not issue an audit report on the coffee chain’s 2019 earnings statement and so was not liable for the Nasdaq-listed company’s financial fraud.

EY bears no liability based on an on-site investigation by China’s finance ministry, it said in an official statement posted on WeChat today. The ministry sent two investigation teams to Luckin and EY in May to examine all of the coffee house’s records and EY’s draft audits. The probe has finished and conclusions reached.

EY stressed that Luckin’s fraudulent practices began last April, and it spotted an anomaly in Luckin’s 2019 financial statement late in January. EY promptly brought in its anti-fraud team, which later found that some managers had inflated earnings between the second and fourth quarters of last year with bogus transactions.

That discovery eventually prompted Xiamen-based Luckin Coffee to issue a public announcement about the fraud. Luckin filed a notice with the US Securities and Exchange Commission on April 2, admitting that it had falsified roughly USD300 million worth of transactions between the second and fourth quarters of 2019.

Before being named auditor for Luckin’s initial public offering in the US in May 2019, EY published audits on Luckin from its formation in 2017 to the end of 2018. According to investigation results to date, the scandal did not amount to fraudulent issuance, so intermediaries, including EY, were spared.

Shares of Luckin Coffee [OTCMKTS: LKNCY], which once sought to rival Starbucks,have slumped more than 90 percent since it announced a trading suspension on June 29 in preparation for delisting. They closed at USD1.38 each on June 28, giving Luckin a market cap of USD321 million.

Editor: Peter Thomas