Luckin Coffee suspends COO, stocks plunge 80%
The Nasdaq-listed Luckin Coffee saw its stocks plummet 81 percent after the Chinese coffee chain said it had suspended its chief operating officer and several other employees for financial misconduct, including fabricating certain transactions.
Luckin Coffee announced late Thursday that its board of directors had formed a special committee to oversee an internal investigation into certain issues during the auditing of the consolidated financial statements for the fiscal year ending December 31, 2019.
The audit discovered that in the second quarter of 2019, Liu Jian, chief operating officer and a director of the company, and several employees reporting to him, had engaged in certain misconduct, including fabricating transactions.
“The information identified at this preliminary stage of the internal investigation indicates that the aggregate sales amount associated with the fabricated transactions from the second quarter of 2019 to the fourth quarter of 2019 amount to around 2.2 billion yuan (US$310.02 million),” according to the company’s statement. “Certain costs and expenses were also substantially inflated by fabricated transactions during this period.”
Luckin has asked investors not to rely on its financial statements and earning releases for the nine months ended September 30 and the two quarters starting April and July 2019.
By the opening bell on Thursday, stock prices of the company plunged by 81.26 percent to open at US$4.92, compared with the closing price of US$26.2 in the previous session.
Earlier this year, short-seller Muddy Waters Research shorted the stock, citing a report alleging that Luckin fabricated financial and operating numbers from the third quarter of 2019.
At the time, Luckin called the methodology of the report flawed, the evidence unsubstantiated and said that the allegations were “unsupported speculations and malicious interpretations of event.”
Luckin said on Thursday that it would take all appropriate actions, including legal, against the individuals responsible for the misconduct.
A number of US law firms have recently issued statements reminding investors that a class action lawsuit against Luckin Coffee is nearing its filing deadline.