Hall of Shame
Luckin Coffee (LK US)
Luckin Coffee (Chinese: 瑞幸咖啡) is a coffee chain in China. The company was founded in Beijing in October 2017. Most of its stores are small "pick-up" stores that locate in office buildings or college campuses that serve for online orders' pickup and delivery. It manages around 4,507 (Jan. 2020) stores.
It listed on the NASDAQ in May 2019 and raised US645.15M. An additional share offering in September 2019 raised 579.6M.
February 1, 2020 - Muddy Waters said it decided to bet that the stock will fall after receiving an 89-page anonymous report that accused Luckin of fraud. The report titled "Luckin Coffee: Fraud + Fundamentally Broken Business" separately demonstrates how Luckin faked its numbers and why its business model is inherently flawed. Covering these two areas it believed that :
- The company is inflating its number of items sold per store and cooking the book by moving the operating losses into advertising expenses, in order to achieve the so-called "store-level" profitability.
- The business model of the company is not sustainable and will fail eventually. Plus, company management has a bad reputation on the capital market and has already started to cash out through pledging shares.
January 31, 2019 - Another short-seller, Citron Research, disagreed with the report. Citron also received the report but said that all data from Biz Con China and App download and calls with competitors confirm financials. Luckin Coffee business is on fire in China. Citron said it has respect for Muddy, but this anonymous report will fall short on accuracy.
February 3, 2020 - Luckin Coffee responds to the anonymous report saying it contains misleading and false allegations.
Ash Illuminations Research
February 4, 2020 - Ash Illuminations Research, another short-seller, tweeted "LUCKIN COFFEE Was Involved In Serious Financial & Business Fraud! $LK inflated its Pre-Made Food and Beverage Items sold by at least 3.17 times, 2.11 times, 3.06 times, 3.38 times for 2018Q4~2019Q3, respectively. It released a 66 page report on Luckin Coffee. The report suggests that Luckin is misleading its investors by providing them wrong information and using fraudulent practices to hide the real picture.
February 12, 2020 - J-Capital Research, also a short-seller, issued a note, "The Long and Short of It" on Luckin Coffee, agreeing with the anonymous report's conclusions. It also noted that an Audit Committee member dumped shares, and the chairman's sister appears to be about to sell.
April 2, 2020 - Luckin Coffee announces the formation of an Independent Special Committee. It also reported that an on-going Internal Investigation found that 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. It also stated that the fabricated transactions from the second quarter of 2019 to the fourth quarter of 2019 amounted to around RMB2.2 billion. Costs and expenses were also inflated during this period. It stated that investors should no longer rely upon the Company’s previous financial statements and earning releases for 2019. The investigation is ongoing and the Company would continue to assess its previously published financials and other potential adjustments.
Muddy Waters: Anonymous Report - Luckin Coffee: Fraud + Fundamentally Broken Business, 1 Feb 2020
Luckin Coffee Inc.: Response to Anonymous Report, 3 Feb 2020
Ash Illuminations Research: Luckin involved In Serious Financial & Business Fraud, 4 Feb 2020
J-Capital Research: The Long and Short of It, 12 Feb 2020
Luckin Coffee Inc.: Formation of Independent Special Committee and Ongoing Internal Investigation, 2 Apr 2020
Nikkei Asian Review: China’s Luckin Coffee faked $310m in sales, in-house probe finds, 3 Apr 2020
WSJ: Behind the Fall of China's Luckin Coffee: a Network of Fake Buyers and a Fictitious Employee, 28 May 2020
Luckin Coffee Inc.: Third Quarter 2019 Earnings to Sept. 30 2019,
Luckin Coffee Inc.: Prospectus - Additional Share Offer, Jan 2020
Luckin Coffee Inc.: Prospectus - IPO, Apr 2019