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Luckin Coffee shares dive as probe into alleged $310m fraud starts

Luckin Coffee shares dive as probe into alleged $310m fraud starts

2020年4月5日 Techinasia
第一段

Nasdaq-listed Luckin Coffee’s share price fell 75.57% to US$6.40 as of market close on Thursday, after the company submitted a filing to the US Securities and Exchange Commission (SEC) announcing an internal investigation into the conduct of former chief operating officer Jian Liu, who is believed to have inflated revenues by 2.2 billion yuan (US$310.5 million).

第二段

Luckin also stipulated that law firm Kirkland & Ellis will provide independent counsel during the investigation, and advised investors to disregard financial results and guidance from 2019 until the full extent of misconduct can be identified.

第三段

The now-suspended Jian Liu served as Luckin’s COO since May 2018, having previously worked with CEO Qian Zhiya at Car Inc. from 2008 to 2017.

第四段

On January 31, questions about the legitimacy of Luckin’s financial results were first raised by diligence-based equity research firm Muddy Waters, which revealed their short position on Luckin via Twitter, citing an 89-page anonymous report supported by 11,260 hours of store traffic video footage. The specific reference to tracking in-store video suggested the embellishment of sales.

第五段

Just days later on February 3, Xiamen-based Luckin responded to the short attack, refuting the “misleading and false allegations” in another SEC filing, KrAsia reported. At the time, the on-demand beverage startup claimed that all of its “key operating data, including the number of items per store per day, items per order, and effective selling price, are tracked in real time and could be verified.”

第六段

About a month later on March 6, 10 US law firms announced they were prepared to file a lawsuit against Luckin on behalf of investors. Specifically, these American investigators were looking into the potential fabrication of certain financial and operating metrics, including per-store per-day sales, net selling price per item, and advertising expenses.

第七段

Luckin has performed well since its initial public offering that raised US$645 million in May 2019, climbing from an opening price of just over US$20 to a peak of around US$50 in January. The fallout from Thursday’s announcement erased what was a 54% gain since IPO, slashing the company’s market cap by almost US$5 billion.

第八段

Despite the impact of the coronavirus pandemic, Luckin’s 2020 outlook was positive, as analysts had expected a 170% year-on-year increase in sales before news of the investigation broke. In addition, at the end of the fourth quarter of 2019, 33 of the hedge funds tracked by Insider Monkey held long positions in Luckin, an increase of 43% from the previous quarter.

第九段

Luckin chief financial officer Reinout Schakel said in an interview last November that the company is on track to become profitable by the third quarter of 2020.

第十段

The company has established the largest network of coffee stores in China as of the end of 2019, surpassing industry incumbent Starbucks. However, it might take some time for Luckin’s management to repair their credibility in the eyes of investors.

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