Luckin Coffee shares took a 36% dive on Wednesday after the company resumed trading on Nasdaq, following a delisting notice from the exchange on grounds of financial fraud.
Luckin’s market capitalization on Wednesday stood at $700 million, less than 7% of its peak valuation of more than $10 billion at the start of 2020, when the company started venturing into unmanned retailing.
Luckin Coffee received the notice to delist on May 15, it cited the company’s fabricated transactions and failure to publicly disclose information on the fraud as the reasons for the exchange’s decision. The company said it would contest the decision, winning the company around two months to remain listed until the Nasdaq Hearings Panel reaches a final decision.
Lu Zhengyao, the chairman of Luckin Coffee, said in a statement that he regrets Nasdaq’s decision requiring the company to delist without waiting for the results of the final investigation.
According to a Tuesday report from Reuters, Nasdaq is preparing to implement new restrictions on initial public offerings (IPOs), requiring companies from countries such as China to raise at least $25 million or at least a quarter of their post-listing market cap, citing sources familiar with the matter. The restrictions are primarily driven by concerns about the lack of accounting transparency and accountability of some Chinese IPOs.
Luckin Coffee admitted on April 3 that several employees, including its chief operating officer (COO), had fabricated transactions amounting to $310 in sales in 2019. The disclosure came two months after short-seller Muddy Waters released a report revealing that the company disclosed falsified operational figures. Luckin initially denied all allegations, but the report prompted a group of US law firms to launch investigations into the company’s financials.
On May 12, Luckin announced that it had fired its CEO and COO, though the company’s chairman Lu Zhengyao remains in position.
The company is also facing scrutiny from China’s top market regulators, such as the China Securities Regulatory Commission, the State Administration for Market Regulation, and the State Taxation Administration. The regulators raided Luckin’s Beijing headquarters in late April, according to a Bloomberg report.
Starting in May, Luckin has also been shutting down its retail stores. In Beijing, the company reportedly has plans to close 80, or one-fifth of its storefronts. However, the company said that they are standard optimizations of underperforming locations.