Luckin Coffee shares sink after COO suspended for alleged financial misconduct

[BENGALURU] Shares of Luckin Coffee sank 81 per cent on Thursday after the Chinese coffee chain said it had suspended its chief operating officer (COO) and several other employees for financial misconduct, including fabricating certain transactions.

The company said the suspensions were the result of initial recommendations from a special committee appointed to investigate issues in its consolidated financial statements for the fiscal year ended Dec 31.

An initial investigation showed that total sales tied to fabricated transactions from the second quarter of 2019 to the fourth were about 2.2 billion yuan (S$444.3 million), Luckin said.

The special committee had indicated to the board that COO Jian Liu and several employees reporting to him had engaged in the misconduct, the company disclosed in a filing, adding that the internal investigation was at a preliminary stage.

Luckin also asked investors not to rely on its financial statements and earning releases for the nine months ended Sept 30 and the two quarters starting April and July 2019.

Earlier this year, short-seller Muddy Waters Research shorted the stock, citing a report alleging that Luckin fabricated financial and operating numbers from the third quarter of 2019.

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At the time, Luckin called the methodology of the report flawed, the evidence unsubstantiated and said that the allegations were "unsupported speculations and malicious interpretations of event".

Luckin said on Thursday that it would take all appropriate actions, including legal actions, against the individuals responsible for the misconduct.

The coffee chain, which competes with Starbucks in China, is already facing intense pressure due to store closures in the wake of the coronavirus outbreak earlier this year.

REUTERS