Luckin Coffee – touted as China’s rival to Starbucks – has suspended its chief operating officer for alleged misconduct as part of an ongoing internal investigation, causing its share price to plummet on the Nasdaq.
The Xiamen-based start-up has formed a committee to lead an internal investigation into misconduct related to “fabricating transactions” last year by Chief Operating Officer Liu Jian and several employees working under him, Luckin said in a statement.
The company’s turnover was inflated by about 2.2 billion yuan (US$309 million) between the second quarter and the fourth quarter of 2019, and certain costs and expenses were “substantially inflated” through fabricated transactions, Luckin said. Previously released earnings for the nine months through September are no longer reliable, it added.
Following the announcement, shares of the Nasdaq listed tech-based coffeehouse chain plummeted 85 per cent in trading on Thursday morning. By about 10am in New York, Luckin had plunged to a record low of US$8.09 a share, 68 per cent below its US$25.02 trading debut last May on Nasdaq.
The committee appointed to look into last year’s financial statements – made up of three independent board directors, Sean Shao, Pu Tianruo and Chong Wai Yuen – recommended suspensions for Liu and other staff members involved in the scandal.
“The firm will take all appropriate actions, including legal actions, against the individuals responsible for the misconduct,” the statement said.
Since its founding in 2017, Luckin has expanded quickly and was operating over 3,500 locations worldwide as of late last year, giving it a reputation as China’s rival to Starbucks. The company said it had no further comment, when contacted by the South China Morning Post.
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