The China Securities Regulatory Commission has publicly criticized the deception revealed by Luckin on April 2 - that revenue had been inflated by some 2.2 billion yuan ($310 million) in 2019 - and pledged to investigate. But in reality, the watchdog has little power to scrutinize or punish the company even though it’s Chinese because the listed entity is incorporated in the Cayman Islands. Meanwhile, Chinese executives and China-registered intermediaries are able to evade penalties from overseas regulators because of a lack of coordination in cross-border regulation.
"Just like the earlier frauds uncovered at U.S.-listed Chinese companies that triggered a wave of short selling a decade ago, Luckin’s case has again destroyed the credibility of other Chinese stocks in overseas capital markets,” one foreign investment banker involved in overseas listings said. “The issue of cross-border regulatory cooperation between China and the U.S. has not been resolved, and this latest fraud is an opportunity to make progress.”