Luckin Coffee — Starbucks’ tech-forward major competitor in China — has received a Nasdaq stock market delisting notice following their announcement of an investigation into fraud allegations culminating in the termination of the company’s CEO Jenny Zhiya Qian and COO Jian Liu.
Nasdaq cited two reasons for the delisting notice: “public interest concerns as raised by the fabricated transactions disclosed by the company” and “the company’s past failure to publicly disclose material information, citing a business model through which the previously disclosed fabricated transactions were executed.”
Luckin has requested a hearing, until which time the company will remain on the stock market pending the outcome. The hearing is set to take place approximately 30-45 days from now.
The news of the alleged fabricated transactions comes from an anonymous report published by activist short-seller Muddy Waters in January which suggested that the company had committed several acts of fraud.
“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 RMB2.2 billion ($310.6 million USD),” the company said in a statement regarding the fraud investigation in April. “Certain costs and expenses were also substantially inflated by fabricated transactions during this period.”
The Beijing-based company announced its U.S. IPO in April 2019 for $571.2 million or $17 per share. At the time, the company was valued at $2.9 billion. The brand had been set on an upward trajectory of fast growth, with more than 90% of its stores categorized as pickup-only locations to match the Chinese grab-and-go coffee culture.
Luckin Coffee plans to continue its internal fraud investigations as the hearing pends.
“The company has been cooperating with and responding to inquiries from regulatory agencies in both the United States and China,” the company said in a statement in April. “The company will continue to cooperate with the internal investigation and focus on growing its business under the leadership of the Board and current senior management.”
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