Wolf Richter, 05 February 2011
Luckin Coffee, a Starbucks imitator and one of many Chinese companies with no operations in the US that have their IPOs in the US and raise funds in the US, filed for Chapter 15 bankruptcy in New York today. The downfall of Luckin was triggered by short seller Carson Block of Muddy Waters that published detailed allegations on January 31, 2020, of massive fraud at the company, perpetrated at the highest levels.
By the time the Muddy Waters report came out, the company’s stock – well, American Depositary Receipt (ADR) – had skyrocketed from the IPO price of $17 a share in May 2019, to $50 a share in January 2020, giving the company a market capitalization (share price times shares outstanding) of $12.6 billion.
The short-seller’s report caused the shares to zigzag lower. On April 2, 2020, the company finally admitted that it had fabricated $310 million (RMB 2.2 billion) in revenues for 2019, nearly doubling its actual revenues. It said that “beginning in the second quarter of 2019, Mr. Jian Liu, the chief operating officer and a director of the Company, and several employees reporting to him, had engaged in certain misconduct, including fabricating certain transactions.”
The fraud, perpetrated in China, was designed to drive up the share price in the US, and it had worked, being instrumental for a nearly 200% gain of the shares in eight months.
