Shares in Chinese coffee chain Luckin Coffee plunged over 80% in trading on 2 April 2020, as an internal investigation alleged that the company’s former chief operating officer (COO) and other Luckin employees had “fabricated” RMB2.2 billion ($310 million) worth of sales in 2019.
According to the findings alleged by a special committee established by the company’s board of directors, former COO and company director Jian Liu and several Luckin employees reporting to him “had engaged in certain misconduct, including fabricating certain transactions”, from the second quarter of 2019 to the fourth quarter of 2019.
The committee also alleges that certain expenses and other costs “were also substantially inflated by fabricated transactions during this period.”
Jian Liu and employees who are allegedly responsible for the misconduct have now been suspended by the company.
Luckin Coffee was first listed on the New York Stock Exchange in May 2019, and stock in the company had reached a peak of $51.38 in January. However, following the joint impact of the ongoing coronavirus outbreak and these allegations, shares in the company fell to a value of $4.91 per share on Thursday morning, down from $26.20 per share on Wednesday 1 April.
Luckin Coffee also disclosed that investors should no longer rely upon the company’s previously issued financial statements and earnings releases for the nine months ended September 30, 2019.
The company was established in 2017 and has pursued an aggressive growth strategy in China in the last few years, as it has attempted to become the dominant force in the Chinese coffee market and establish itself as a direct rival to US coffee giant Starbucks.
By the end of 2019, the Xiamen-headquartered coffee chain operated over 4,500 chains across China, more than doubling its total number of outlets within a year.
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