Luckin Coffee shares fall 81% after board suspends COO for alleged 'fabricated transactions'

Ines Ferré
Markets Reporter

Luckin Coffee (LK) shares collapsed after the company suspended its COO Jian Liu and “several employees reporting to him” for misconduct related to “fabricated transactions.”

The stock opened on Thursday at $4.91, down 81% from Wednesday’s closing price of $26.20.

“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,” the company said in a statement. In U.S. dollars, that amounts to about $310 million.

“Certain costs and expenses were also substantially inflated by fabricated transactions during this period,” the company added.

Luckin Coffee went public on the Nasdaq in May of 2019, pricing its IPO at $17 a share. In January, the stock reached a high of $51.38 before the coronavirus outbreak forced the company to temporarily close many of its stores in China.

In late January, short-seller Carson Block’s Muddy Waters Research tweeted: “MW is short $LK. We received unattributed 89-page report alleging $LK is a fraud.” The published report sent the stock sharply lower that day. Luckin Coffee later issued a statement saying the company “categorically denies all allegations in the Report.”

On Thursday, Keybanc Capital was quick to downgrade the stock to ‘sector-weight’ from ‘overweight’, noting it will take several years for management to gain back credibility following the investigation’s findings. The note said previous financial statements cannot be relied upon by investors, “which likely calls into question the Company’s overall liquidity.’

In this Aug. 15, 2018, photo, an employee helps a customer place an order on his smartphone at a Luckin Coffee pop-up shop at the World Robot Conference in Beijing. Shares of Luckin Coffee, a fast-growing rival to Starbucks in China, rose 20% in their U.S. stock market debut Friday, May 17, 2019. (AP Photo/Mark Schiefelbein)

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Ines covers the US stock market from the floor of the New York Exchange. Follow her on Twitter at @inesreports.

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