Trading in China’s
stock was halted before Tuesday’s open, and it hasn’t resumed since.
The Nasdaq Exchange, where Luckin shares (ticker: LK) are listed, had halted the stock pending the release of material news. On Thursday, one more reason was added—the exchange is now requesting additional information from the company. It isn’t clear what information is being requested.
Luckin stock had plunged nearly 80% last Thursday after the company’s board of directors said it is launching an internal probe into alleged accounting fraud at the company. The stock tumbled further in the following days, from $26.20 on April 1 to $4.39 this past Monday at the close, before trading was halted. A flurry of law firms have been calling for investors with significant losses to file class actions against the company.
Concerns were first brought to public attention by short seller Muddy Waters Research back in January, which said it was shorting Luckin shares after receiving an 89-page anonymous report that accused the company of fraud. Luckin Coffee denied the allegations at the time.
Last week, Luckin’s board alleged that COO Jian Liu, along with several employees reporting to him, fabricated transactions worth as much as 2.2 billion Chinese yuan ($310 million) from the second quarter to the fourth quarter of 2019. To put that in perspective, Luckin had reported total revenue of $2.9 billion for the first three quarters of 2019. The fourth-quarter numbers weren’t released.
Luckin’s board said it has formed a special committee of three independent directors to oversee an internal investigation and that Liu and other implicated employees have been suspended.
Investment banks have extended margin loans to Luckin Coffee’s founder and chairman Lu Zhengyao with the company’s securities as collateral, according to reports. According to a Wall Street Journal report Monday,
(GS) said that an entity controlled by Lu’s family trust defaulted on $518 million of margin debt and that a group of lenders had seized almost 80% of the company’s total float. That stake—worth more than $2 billion before the scandal emerged—has seen its value significantly shrink to just $335 million based on Monday’s close.
Luckin didn’t immediately respond to a request for comment.
Luckin Coffee has over 4,500 locations across China, selling freshly-brewed coffee and other beverage products. Quickly expanding since its foundation in 2017, it has been viewed as a major competitor to
(SBUX) in China. The company went public last May and raised about $571 million on the Nasdaq Exchange in New York. The listing was one of the biggest by a mainland Chinese company in the U.S. last year and had some big-name backers, such as
(CS) and Morgan Stanley (MS).
Luckin’s scandal has sparked a wave of scrutiny of Chinese companies listed in the U.S. A few more Chinese companies have since been accused of fraud, including video-streaming platform iQIYI (IQ) and online tutoring company. TAL Education (TAL). iQIYI denied the allegations. Tal Education has said an employee inflated sales figures.
Write to Evie Liu at firstname.lastname@example.org