- Chinese coffee giant, Lukin coffee, saw its shares plummet nearly 90% overnight and in pre-market trade today.
- The company says one of its top executives, chief operating officer Jian Liu, and staff reporting to him, forged the company’s sales figures.
- The news came after the Nasdaq-listed company had put together a special committee to investigate issues which arose in its 2019 financial statements.
- The coffee chain, which is second only to Starbucks in China, found that sales were fabricated from the second quarter of last year to the fourth quarter. Sales were inflated by about 2.2bn yuan or $310 million. This equates to approximately 40% of annual sales.
- It also announced that investors could not use past financial statements to value the business, and said it still needed to look into, and confirm, other expenses and costs that were also inflated during the period.
- Luckin Coffee had seen immense growth in recent years with its store footprint rising almost six-fold since mid-year 2018 to the end of September 2019. Luckin saw its market value triple since it debuted on the Nasdaq in May 2019.
- Famed short-seller Muddy Waters, earlier this year, warned investors of possible falsehood in the sales figures. This was after they received credible research detailing video analysis which contradicted the financials.
- At the time, the 2½-year-old company strongly denied the allegations, and described them as false and misleading. The company was well known for both its exponential growth and massive losses – with its 2018 financials indicating $125 million in revenues and $475 million in losses.