(Yicai Global) July 3 -- Charles Lu will stay on as Luckin Coffee's director and chairman as the motion to oust him from these posts failed to garner the more than two-thirds vote needed to unseat him, Luckin said in a filing with the US Securities and Exchange Commission dated July 2.

Lu has thus gained the upper hand in the first power struggle within the coffee chain's board following its May firing of Chief Executive Jenny Qian for bookkeeping fraud. A scramble for control of the company has been raging between two camps ever since, The Paper reported today. On the one hand is Luckin's management, led by Lu, while institutional shareholders and independent directors comprise the other faction, represented by Centurium Capital and Joy Capital founders David Li and Liu Erhai.

An extraordinary general meeting slated for July 5 will deliberate a resolution to remove Li, Liu and independent director Sean Shao from the board, per the report, which cited people familiar with the matter.

Lu hoped to cement his control of the board by bumping off hostile directors and independent directors before losing his grip on the scepter over his involvement in the firm’s accounting fraud scandal, in which an internal audit found it padded its assets by some CNY2.1 billion (USD300 million), hanky-panky for which the Nasdaq Stock Market is now delisting it.

As a preemptive countermeasure to Lu's plan to purge the board, its independent and other directors met on July 2 to remove Lu from his posts in a gambit that has apparently proven unavailing, at least based on the SEC filing.

Jenny Qian founded Xiamen, Fujian province-based Luckin in November 2017 after she stepped down as ride-hailing firm UCAR's director and chief operating officer. The coffee startup landed on the Nasdaq Exchange in May last year only 18 months after its inception, in the fastest-ever US listing of a Chinese company. Luckin, which now owns over 4,000 physical stores across China, has outpaced rivals Starbucks and Costa Coffee to become the largest Joe chain brand in the country.

Then-COO Liu Jian was suspected of roasting the company’s books, with roughly CNY2.2 billion (USD311.4 million) in transactions involved. Luckin announced the board’s set up of a special committee to oversee its internal probe in an April 2 statement. The Chinese java giant is now the target of several US class actions that accuse it of false and misleading statements in violation of US Securities Laws.

The coffee chain called its internal investigation quits on July 1, stating the board's special committee found the fraud had begun in April last year, and its net operating revenue for that year had been overstated by some CNY2.1 billion. Former chief executive Qian, ex COO Liu and other staffers forged transaction records and then transferred the underlying funds from these bogus deals to the company via third parties with links to the company or its employees, it added.

Luckin's stock [NASDAQ:LK], which fell 90 percent to close at USD1.38 on June 26 from its USD17 initial offering price, has been suspended from trading on the Nasdaq bourse since market opening on June 29.

It will likely finally fall off the board in the next few weeks, according to the Wall Street Journal, which reported this ultimate act usually occurs 10 days after the company falls on its sword by taking the terminal ministerial step of filing a corresponding Form 25 with the Securities and Exchange Commission.

Editor: Ben Armour