(Yicai Global) April 7 -- Luckin Coffee, which last week confessed that its chief operating officer and other employees had faked sales figures by as much as CNY2.2 billion (USD310 million) last year, is now claiming on directors' and officers' liability insurance to the tune of USD25 million to help shield it from compensation payouts. 

Ping An Insurance has received an insurance claim from the coffeehouse chain and is processing it, said China's biggest insurer. China Pacific Property Insurance has not yet received formal notification from the main underwriter Ping An, according to the Shanghai-based co-insurer.

The move follows a devastating week for investors in Luckin, which is often touted as Starbuck's archrival in China. Since the company admitted the fraud in a statement on April 2, its stock price [NASDAQ:LK] has lost more than 80 percent of its value, plummeting from USD26.20 to close at USD4.39 yesterday.

Before listing on the Nasdaq last May, Xiamen-based Luckin bought a USD25 million D&O insurance policy, which offers liability to company executives in the event that they are sued by investors who deem their decisions and actions to have harmed shareholders' interests.

Whether or not it can be claimed depends on establishing if Luckin performed truthful disclosure when buying the insurance, said the China Business Journal, citing Xiang Fubin, senior partner at Beijing Weiheng Law Firm's Shanghai branch. The financial fraud started in the second quarter of last year, before the firm went public, Luckin said in its statement.

In general, only the personal misconduct of the chairman, chief executive officer, chief financial officer and secretary of the board may be construed as corporate behavior, he added. Luckin's case involves the actions of COO Liu Jian.

It would be necessary to prove that the four senior management positions were involved in, informed of or even gave the COO instructions in order for this instance of financial fraud to be interpreted as a company act.

More than a dozen insurance companies underwrote the policy. Eight are Chinese firms that have guaranteed USD10 million. These include Shenzhen-based Ping An which has underwritten 30 percent of the amount, China Pacific Property Insurance is responsible for 17.5 percent, People's Insurance Company of China 15 percent, China Insurance 15 percent, Guoren Property and Casualty Insurance 10 percent, China Continental Property and Casualty Insurance 5 percent, Jintai Insurance 5 percent and Qianhai Property and Casualty Insurance 2.5 percent, the China Business Journal said on April 5.

The ratio insured by foreign insurance firms has not been made public, but they include Germany's Allianz and Switzerland's Zurich Insurance Group.

Editor: Kim Taylor