One-Time IPO Darling Sinks After Extended Trading Halt Lifted

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Luckin Coffee (LK) plunged to new lows as it began trading for the first time in over a month after the firm received a delisting notice from Nasdaq

The once hot China stock, which came public a year ago this week, stopped trading April 6 after the firm disclosed it had launched a probe into a $310 million sales fraud. The investigation is still ongoing.

Now the firm is facing a battle to be allowed to keep trading in the U.S., with Nasdaq notifying the company it plans to delist shares.

In a news release, Luckin said Nasdaq cited two reasons in the delisting notice: “public interest concerns as raised by the fabricated transactions disclosed by the company,” Also, its “past failure to publicly disclose material information, citing a business model through which the previously disclosed fabricated transactions were executed.”

Luckin Coffee has requested a hearing before the Nasdaq Hearings Panel, and will remain listed until it gets the opportunity to plead its case. Hearings typically take place 30 to 45 days after they are requested.

It comes as Nasdaq had renewed its focus on auditing standards. According to Reuters, it has tightened listings rules in an effort to curb IPOs of Chinese companies closely held by insiders that display unclear accounting.


China Stock Cleans House

The firm has been taking steps to clean house amid the fraud scandal. Both CEO Jenny Zhiya Qian and COO Jian Liu were fired from their management roles and forced to resign from the company’s board amid a dramatic management shake-up last week.

The company axed the pair after the investigation found evidence that “shed more light on the fabricated transactions” and was brought to the attention of the board.

Jinyi Guo, a director to the board and a senior vice president of the company, has been installed as acting CEO. He has previously served as vice president and as a regional manager at McDonald’s China.

Luckin Coffee had previously said Liu, as well as “several employees reporting to him,” had engaged in misconduct that includes fabricating transactions, while other costs and expenses had also been “substantially inflated.” The company said the fake transactions amount to around $310 million and took place from Q2 2019 to Q4 2019.

The so-called Starbucks (SBUX) of China also said at the time that the above figure has not been independently verified. Luckin said it’s “subject to change as the internal investigation proceeds.” It also said it is committed to taking measures to improve its internal controls.

Trouble Boils Over For Luckin Coffee Stock

Shares sank 36% to 2.80 on the stock market today. Luckin Coffee stock had already plunged below its 50 and 200-day lines, MarketSmith analysis shows. The stock has lost almost 90% of its value so far in 2020. It was trading above 40 just two months ago.

The stock has a dismal Composite Rating of just 9. It has yet to turn a profit, despite the company saying it had 4,507 “self-operated” stores at the end of 2019.

Meanwhile, coffee giant Starbucks was up 2%. It had 4,292 stores in China as of the end of the fiscal fourth quarter, and has turned to the communist country for growth.

This article was originally published on finance.yahoo.com/news

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