Luckin Coffee May Face US Class Action Suit as Shares Crash on USD310 Million Fraud
Luan Li
DATE:  Apr 03 2020
/ SOURCE:  yicai
Luckin Coffee May Face US Class Action Suit as Shares Crash on USD310 Million Fraud Luckin Coffee May Face US Class Action Suit as Shares Crash on USD310 Million Fraud

(Yicai Global) April 3 -- Luckin Coffee, often described as China's rival to Starbucks, could face legal action in the United States after the company said its chief operating officer has been suspended on suspicion of fabricating sales figures to the tune of CNY2.2 billion (USD310.4 million). The coffee chain's shares plunged in New York.

Luckin Coffee is likely to face a class action lawsuit regarding the alleged fraud, but the details are still unclear, Shen Meng, executive director at boutique investment bank Chanson & Co., told Yicai Global.

Several US law firms have filed class action suits against Luckin regarding information disclosure after California-based Muddy Waters published an anonymous report on Jan. 31 that accused the coffee chain of a broken business model and falsified store traffic data since the third quarter of 2019. On Feb. 3, Luckin said those allegations were unfounded.

Luckin set up a special committee to investigate Chief Operating Officer Liu Jian and employees who reported to him on suspicion of a CNY2.2 billion performance fraud regarding exaggerated sales and fake transactions from the second quarter of 2019, the Xiamen-based company said in a statement yesterday.

The company's shares [NASDAQ: LK] plunged 76 percent to USD6.40 after its announcement, erasing USD5 billion from its market capitalization. It's now worth about USD1.6 billion.

Founded in October 2017, the company went public last May, pricing its shares at USD17 to raise USD561 million.

Editor: Emmi Laine

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Keywords:   Luckin Coffee,Financial Fraud