What Happened to Luckin Coffee Stock? DOWN 80%
Chinese coffee chain Luckin Coffee said Thursday that an internal investigation found its COO fabricated about 2.2 billion yuan ($ 310 million) in 2019 sales..
Shares plummeted more than 80% in premarket following the publication of the results of the investigation. The stock has dropped nearly 72% in recent times, losing nearly $ 5 billion of market value..
The investigation revealed that Jian Liu, the chief operating officer of Luckin, and several employees who helped him were involved in fraudulent activities, including fabricating sales reports. Liu and employees implicated in the misconduct were suspended from work, the company said it would open criminal charges against those responsible.
Luckin Coffee says an internal investigation is at a preliminary stage and its estimate of the trumped-up sales has not been reviewed by an independent auditor. Company special committee appointed Kirkland & Ellis as an independent external consultant and FTI Consulting as an independent forensic expert.
In January, Muddy Waters Research said it was betting against stocks in light of what they call a scam and «fundamentally broken business».
Luckin then retorted by calling a report «misleading» and «false».
«Luckin situation shows exactly why we need "shorts" on the market. We believed this report was credible and that’s why we took a position, ”Muddy Waters founder Carson Block told CNBC. – This is again a wake-up call to US policymakers, regulators and investors about the extreme fraud risks that Chinese companies pose to our markets».
The initial public offering of the Chinese company raised $ 561 million. Share prices were $ 17. The stock began public trading on the Nasdaq in May, gaining 18% since its debut. The stock peaked in January at $ 51.38 but fell as the coronavirus outbreak spreads in China. The share hit a record low of $ 4.90 a share on Thursday morning. Except for Thursday’s fall, shares are up 54% after IPO.
Luckin tried to create a customer base with small locations formatted for convenience and offering big discounts. In January, the company said it had more than 4,500 offices in China, several hundred more than Starbucks. Starbucks responded to a competitive threat by opening cafes in China focused on faster delivery and fewer seats.