Luckin Coffee will not appeal Nasdaq delisting decision

Luckin Coffee Nasdaq delisting
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Chinese coffee chain Luckin Coffee has announced that it does not plan to appeal the decision of the Nasdaq exchange regarding its stock delisting.

Scandal-hit Luckin Coffee has given up plans to appeal its stock’s delisting from the Nasdaq exchange. The Chinese coffee firm was previously seen as the next rival of Starbucks prior to the accounting scandal.

Fraud indications

In January 2020, Muddy Waters Research said that it bet against the stock due to the fraud and a “fundamentally broken business.”

Luckin responded by calling the short seller’s report “misleading” and “false.”

“Luckin shows exactly why we need short sellers in the market. We believed this report was credible when we read it, and that’s why we took a position,” Muddy Waters founder Carson Block wrote in a statement sent to CNBC.

“This is again a wake-up call for U.S. policymakers, regulators, and investors about the extreme fraud risk China-based companies pose to our markets.”

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Accounting Scandal

On April 2, the coffee company announced that it suspended chief operating officer Jian Liu after discovering that he and several of his direct reports “had engaged in certain misconduct, including fabricating certain transactions.”

Based on the investigation, Liu and the employees he supervised, had connived to carry out a misconduct, including altering sales records.

The fabricated reports amounted to around 2.2 billion yuan or approximately $310 million from the second quarter to the fourth quarter of 2019.

As a result, the Luckin Coffee’s shares fell by more than 80% in premarket trading following the results of the internal investigation. Shares have been reportedly down nearly 72%, sweeping away nearly $5 billion from its market value.

The Chinese coffee chain previously announced that its net sales for the first nine months of 2019 were 2.9 billion yuan or $413 million.

After the investigation was announced, Luckin Coffee’s shares fell by as much as 75% in early April and has not traded since.

Luckin’s stock was trading at $4.39 a share before it was halted for trading, which was almost 75% below its $17 IPO price. This also represented an over 90% decline from its January peak of just above $51.

KeyBanc Capital Markets downgraded Luckin stock when the fake data news broke.

“Following our conversation with the Company, we believe earnings visibility will be limited for the foreseeable future and it will take management several years to repair their credibility,” analysts led by Eric Gonzalez wrote.

“Previously released financial statements and guidance can no longer be relied upon by investors, which likely calls into question the Company’s overall liquidity.”

Firing of CEO and COO

In mid-May, Luckin Coffee announced that it fired its chief executive officer (CEO) Jenny Zhiya Qian along with COO Liu after they were found to have fabricated sales reports. The company appointed Jinyi Guo, a senior vice president and board director, as acting CEO.

A filing by Luckin with the US Securities and Exchange Commission (SEC) indicated that Liu was the one who designed the scheme.

Nasdaq delisting

In a regulatory filing, Luckin Coffee said Nasdaq informed the company on May 15 of its plans to delist the shares, just over a month after trading was halted due to an accounting scandal involving its top executives.

The coffee company previously said that it will be requesting a hearing with Nasdaq about the delisting notice. Luckin Coffee’s share will remain on the Nasdaq stock market until the hearing date.

However, in a press release on Friday, Luckin Coffee said that shares will now be suspended from trading at the start of Monday, June 29.

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