Jing Yang in Hong Kong, Juliet Chung in New York and Julie Steinberg in London, 23 June 2020
In January, days after the shares of Luckin Coffee Inc. hit a record high on the Nasdaq Stock Market , giving the company a $12 billion valuation, a cryptic email arrived in the inboxes of multiple short sellers. “A new generation of Chinese Fraud 2.0 has emerged,” it said. “Companies that start off as fundamentally and structurally flawed business model [sic] that evolves into fraud.” The author offered to share customer receipts and videos from Luckin Coffee outlets, attached a long report about the company and said the short sellers could publish and take credit for it.
Several American money managers reviewed the report, which accused Luckin of inflating its sales. Carson Block of Muddy Waters LLC published it, posting the 89-page report on Twitter on Jan. 31. Luckin’s auditor subsequently discovered that several employees had faked revenue and expenses and on April 2, the company disclosed that as much as $310 million of its 2019 sales was fabricated. Its shares collapsed, less than 11 months after the company went public, and will soon be delisted.