After $300 Million Fraud, Luckin Coffee Plots a Nasdaq Comeback

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Xiamen-based Luckin Coffee was once hyped as the chain that would beat out Starbucks in China. But then, in 2020, one of the greatest scandals in coffee history dealt a venti sized blow to its chances against its Americano rival.

But two years after Luckin was exposed for fabricating $300 million in sales, news broke Wednesday that the company is mounting a comeback, and plans to relist on the Nasdaq after being kicked off the exchange.

Hot Cup of Woe

Luckin was an instant coffee success story. Founded in 2017, the company went public in 2019, and then surged among American traders due to what appeared to be roasting hot sales growth. Investors bought up the stock, betting Luckin would soon rival Starbucks, which has a massive China presence.

But then suddenly, in early 2020, short selling firm Muddy Waters accused Luckin of accounting irregularities and an internal review found the COO’s office fabricated $310 million in sales, or enough to buy a single pour over and an avocado toast in Brooklyn. The Nasdaq delisted Luckin shortly thereafter and Luckin agreed to pay $180 million to settle accounting fraud charges in the US. The SEC said the company raised $864 million from investors while falsifying sales numbers. The final blow came when Luckin filed for bankruptcy in the US last year, but that move also turned out to be a blessing:

  • Luckin was able to keep its stores open due to bankruptcy protection and reported 106% year on year sales growth to $370 million in the third quarter — it’s now developing plans to relist on the Nasdaq, according to sources who spoke to the Financial Times.
  • With 5,671 stores, mostly in mainland China, Luckin has 500 more locations than Starbucks and, even though it was delisted, the company’s shares kept trading over-the-counter in the US and it has a market cap of $2.5 billion.

Fool Me Once: Luckin’s critics are not buying it. “Revenues rising sharply is something that those of us who have been following Luckin have seen before,” said Michael Norris, an analyst at consultancy AgencyChina, who has questioned the company’s business going back to its IPO in 2019, told the FT.