CNBC reports Luckin Coffee disclosed Thursday that an internal investigation has found that its chief operating officer fabricated 2019 sales by about 2.2 billion RMB.
Shares cratered more than 80% in premarket trading after the release of the regulatory filing.
The investigation found that Jian Liu, Luckin’s chief operating officer, and several employees who reported to him, had engaged in misconduct, including fabricating sales. The company said that investors should not rely on Luckin’s prior financial statements and earnings releases for the nine months ended Sept. 30.
Luckin said that the internal investigation is at a preliminary stage and its estimate of the fabricated sales has not been verified by its independent auditor. The company’s special committee has retained Kirkland & Ellis as its independent outside counsel and FTI Consulting as an independent forensic accounting expert.
Muddy Waters Research shared in January that the firm bet against the stock in light of what it described as fraud and a “fundamentally broken business.”
Per TheStreet, Luckin shares plummeted more than 84% in pre-market trading following news of the investigation, to indicate an opening bell price of $4.18 each, giving it a market value of just over $1 billion.
Beijing-based Luckin listed on the Nasdaq in May of last year with a market value of $4.2 billion after pricing its IPO at $17 each.
Founded in 2017 by its current CEO, Qian Zhiya, Luckin has around 4,000 coffee outlets in China as it goes head-to-head with Starbucks in the world’s biggest coffee market.
Luckin, which is backed by BlackRock (BLKB) – Get Report and Singapore’s powerful sovereign wealth fund, estimates consumption will rise to 15.5 billion cups by 2023, nearly 80% higher than last year’s record levels.