China's Luckin Coffee Scandal Renews US Call for Stricter Oversight
Luckin Coffee Inc., a Chinese coffee retail chain listed on the Nasdaq, confirmed this week it has received notice that it will be delisted from the U.S. stock exchange after it acknowledged falsifying $310 million in sales.To get more news about luckin coffee stock price, you can visit shine news official website.
Analysts say the action is a blow to all Chinese companies, and comes as U.S. lawmakers consider imposing new regulations on Chinese companies seeking American investment.
Luckin, an upstart rival to Starbucks Corp. in China, said in a regulatory filing on Tuesday that it has received written notice from Nasdaq's listing qualification staff on May 15 that it would be dropped. The company said the delisting decision was due to "public interest concerns" surrounding "fabricated" transactions, as well as "past failure to disclose material information."
The China-based company said that it planned to request a hearing before a Nasdaq panel to appeal the decision – a meeting that would occur roughly 30 to 45 days after the request."This is a such an unfortunate incident, it is a blow to the reputation of Chinese listed companies in the U.S," said Guo Yafu, founder and CEO of TJ Capital Management.
Luckin is the latest in a series of Chinese companies listed in the U.S. that have come under intense scrutiny.
The U.S. Senate on Wednesday passed sweeping legislation that potentially could bar many Chinese companies from listing shares on U.S. exchanges or raising money from American investors without adhering to strict regulatory and auditing regulations.
The so-called "Holding Foreign Companies Accountable Act," overwhelmingly approved by Republican and Democratic senators, would require Chinese companies to demonstrate they are neither owned nor controlled by a foreign government. This would require the companies to submit to an audit that can be reviewed by the Public Company Accounting Oversight Board, a non-profit group that oversees audits of all U.S. companies that want to raise money in public markets.Luckin Coffee Inc, a coffeehouse chain founded in 2017, joined Nasdaq in 2019 through a $561 million IPO, or initial public offering.
The company rapidly expanded between 2017 and 2019, fueled by an aggressive marketing strategy, in which the company reportedly spent three times as much as it earned to feed its growth. By the beginning of 2020, the company claimed it had 4,500 shops in Mainland China, several hundred more than rival Starbucks.Yet on April 2, Luckin Coffee announced that an internal investigation found that its chief operating officer, Jian Liu, had fabricated the company's 2019 sales by "around RMB2.2 billion" ($310 million). On April 8, the U.S. stock market halted trading on all Luckin shares as a result of the fraud probe.
Throughout April, the company's stock dropped by over 80%. On May 12, the company fired its CEO Jenny Zhiyq Qian and COO Jian Liu from their positions."The cooked books are either from accounting fraud or sales fraud," Guo told VOA.
After the delisting decision by Nasdaq, Luckin Coffee founder Charles Lu Zhengyao said in a statement published on Chinese social media platform WeChat on Wednesday that he "apologizes to all the investors, staff and clients of Luckin for the terrible impact of the incident."