Luckin Coffee’s fake-transactions scandal could cost the Chinese chain a spot on the Nasdaq Stock Market.
The exchange notified the Beijing-based company, which is traded publicly in the U.S., that it would lose its listing.
Nasdaq cited “public interest concerns” raised by Luckin’s fabricated transactions that the company acknowledged last month. It also cited the company’s failure to disclose “material information,” citing those fabricated transactions.
Luckin said it would request a hearing.
Delisting is a problem for companies, as it makes trading of stock more difficult. Companies that lose their listing can only be traded over-the-counter by appointment.
Trading in Luckin stock has been halted since early April, after the company acknowledged a massive fraud led by the company’s chief operating officer.
The company apparently fabricated transactions beginning in the second quarter of last year, amounting to about $310 million, or 41% of the $759 million in revenue Luckin expected to generate in 2019.
Luckin last week terminated its CEO, Jenny Zhiya Qian, and the aforementioned COO, Jian Liu. Board member Jinyi Guo was named interim CEO.
Luckin Coffee quickly became an overnight sensation in China, with a takeout- and delivery-focused model of small, cashless stores and rapid expansion. In just two years, the company became the largest coffee chain in China by units, getting to 4,500 locations by the end of 2019.
In the process, the startup company put Seattle-based Starbucks on its heels in a country it considers vital to its future growth.
Luckin went public in the U.S. last year, raising $570 million in an initial public offering in May, the same quarter the chain apparently began faking transactions.
The only thing quicker than the chain’s rise was its downfall, which appeared to begin in February when a short seller published an anonymous allegation that the company inflated its numbers.
The short seller, Muddy Waters Research, called Luckin “a fundamentally broken business that was attempting to instill the culture of drinking coffee into Chinese consumers through cutthroat discounts and free giveaway coffee.” Luckin at the time defended its business, only to acknowledge the fraud later.
Nasdaq, for its part, is planning to tighten its rules for Chinese companies looking to be listed on the stock exchange, according to Reuters. The Luckin fraud has apparently increased concerns about some of the Chinese companies that look to raise funds through investors in the U.S.
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