HONG KONG (BLOOMBERG) – Lenders led by Credit Suisse Group are targeting the family assets of Luckin Coffee Inc chairman Lu Zhengyao as they try to recoup losses on more than US$500 million (S$709 million) in margin loans that soured after the company became embroiled in an accounting scandal.

Credit Suisse is seeking a court order to appoint liquidators for Haode Investment Inc, according to a notice posted in the BVI Gazette on Thursday (May 21). Haode, controlled by Lu’s family trust, defaulted on a loan facility backed by Luckin shares, according to a statement from lenders in early April. Spokespeople for Credit Suisse and Luckin declined to comment.

The liquidation request adds to a long list of challenges facing Lu, who became a billionaire after his fast-growing Chinese coffee chain went public in the US with help from some of the biggest names on Wall Street. Much of Lu’s wealth has been wiped out by a 92 per cent plunge in Luckin’s stock since April, when the company disclosed that some of its employees may have fabricated billions of yuan in sales.

Luckin’s fall from grace has made it a poster child for concerns about Chinese corporate governance, fueling a debate in Washington over the extent to which US money and capital markets should be accessible by firms from a growing geopolitical rival. Nasdaq is moving to delist Luckin from its exchange, while the Senate approved legislation Wednesday that could lead to some Chinese companies being barred from US bourses.

Lu said in a statement on Wednesday that he’s “deeply disappointed” Nasdaq is moving to delist the shares before Luckin releases final results of an internal probe into its accounting.

Banks that participated in the loan facility to Lu’s investment vehicle signaled in April that they plan to sell Luckin shares that were pledged as collateral, though its unclear whether the banks have started offloading the shares or how much money they’ll be able to recoup.

Credit Suisse and Morgan Stanley each put up about US$100 million as part of the loan facility, while China’s Haitong International Securities Group lent about US$140 million, Bloomberg reported last month, citing a person familiar with the matter. Other banks involved include Barclays, Goldman Sachs Group and China International Capital Corp.

Lu’s investment vehicle has disputed that it’s in default and has requested an injunction against Credit Suisse in Hong Kong to prevent the bank from commencing liquidation proceedings.

Few banks have seen a bigger fallout from the Luckin saga than Credit Suisse, which was the lead underwriter for Luckin’s initial public offering last year and the secondary sale in January.

The lender lost a high-profile Hong Kong IPO in the wake of the scandal and reported a five-fold increase in loan-loss provisions at its Asia Pacific unit, primarily due to the Luckin margin debt. The bank is conducting an internal review of the case, and scrutiny on loans to Chinese companies has increased, according to people familiar with the matter who declined to be named discussing private matters. China is core to Credit Suisse’s strategy to win business from rich entrepreneurs across Asia.

The Swiss bank, which is acting as an agent for the loan facility, filed the liquidation request to the Eastern Caribbean Supreme Court, High Court of Justice, in the British Virgin Islands on April 23, according to the BVI Gazette notice. A hearing is schedule for June 8.