Luckin Coffee, still reeling from its fraud scandal, announced Tuesday that it received a second delisting notice from Nasdaq because of its failure to file an annual report.
“The Company has been working diligently to explore possible ways to file the Annual Report as soon as possible,” the company said in a statement. “However, the Company has not been able to file the Annual Report due to the impact of the delayed financial statement preparation process caused by COVID-19 and the pendency of the previously disclosed internal investigation.”
The first delisting notice came in May. That notice cited two reasons for delisting the Chinese coffee chain—public interest concerns because of the fabrication scandal and the company’s past failure to publicly disclose material information.
The chain’s value on the stock market has plummeted by more than 90 percent since the beginning of the year.
The series of events started in January when short seller Muddy Watters received an anonymous 89-page report alleging numerous examples of wrongdoing by the company.
“When Luckin Coffee went public in May 2019, it was a fundamentally broken business that was attempting to instill the culture of drinking coffee into Chinese consumers through cut-throat discounts and free giveaway coffee,” the report stated. “Right after its $645 million IPO, the company had evolved into a fraud by fabricating financial and operating numbers starting in [third] quarter 2019.”
At the time, Luckin vehemently denied the accusations, stating “The methodology of the Report is flawed, the evidence is unsubstantiated, and the allegations are unsupported speculations and malicious interpretations of events.”
In early April, Luckin revealed there was truth in that anonymous report. An internal investigation discovered that COO Jian Liu allegedly fabricated $310 million worth of sales. Investigators also found that costs and expenses were inflated. As a result, Liu and CEO Jenny Zhiya were fired. Six other employees who were involved in or had knowledge of the fraud were placed on suspension or leave.
A Wall Street Journal investigation said Luckin sold vouchers redeemable for tens of millions of cups of coffee to companies with ties to Chairman Charles Lu. Those purchases helped inflate revenue.
The Chinese brand will reportedly hold a meeting July 5 to remove several directors including Lu and board members Sean Shao, David Li, and Erhai Liu, according to the Journal. Tianruo Pu, another director, left the company due to personal reasons earlier in the month.
Luckin said it’s been cooperating with and responding to inquiries from regulatory agencies in China and the U.S.
The coffee chain was founded in 2017 and set a goal to overtake Starbucks as the No. 1 coffee chain in China. In three years, the brand exploded and grew past 4,500 locations. Last year, it raised roughly $645 million in an IPO. The company aims to cut out the cashier-customer interaction by handling the purchase process digitally.