Wednesday 06 December 2023

Luckin Coffee’s co-founder apologizes for the fraud and says he «can’t sleep at night»

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MILAN – Charles Zhengyao Lu, chairman and co-founder of Luckin Coffee Inc., apologized for the accounting scandal has embroiled the coffee chain in a huge crisis and expressed his disappointment and regret as “Nasdaq asked the company to withdraw from the market without waiting for the final investigation result, which was unexpected.”

He said he firmly believes that Luckin’s business model is valid. “The company’s annual revenue has continuously grown since its operation. And now, despite the double impact of the epidemic and the scandal, thousands of stores of Luckin are still striving to maintain operations.”

“I am willing to accept any investigation,” Lu said, claiming that almost all the money he has made since the beginning, as well as the funds pledged by Luckin Coffee stocks, is used to support the operation and development of the company.

“I can’t sleep at night. If the company is delisted, it will surely face more difficulties and increased pressure,” he added.

Whatever happens, Lu said he will “spare no effort” in minimizing shareholders’ losses.

According to Bloomberg, Luckin Coffee is still opening stores at a breakneck pace in China. The coffee chain opened 10 outlets a day in its home market in the second quarter as of May 12, bringing its total number of stores to 6,912, according to Thinknum Alternative Data, a New York-based company that collates company operations data from public channels.

While that marks a slowdown from the first quarter – when Luckin opened an average of 20 stores a day after raising some $778 million in capital markets – it is more rapid than the same period a year ago.

Luckin appears to be trying to use its fast-growth model to try and stay afloat amid the scandal.

However, new local reports reveal that Luckin Coffee has cut its workforce in Xiamen in China’s Fujian province. The company reportedly laid off around half of its staff members. Luckin Coffee has yet to make a formal announcement on why it had reduced its staff.

Last week, Luckin Coffee sacked its CEO and COO following internal investigations into sales fraud.

Luckin is under investigation by both the regulatory agencies in both the United States and China.

The Xiamen-based company said on Monday that it has requested a hearing on the delisting notice, and the stock will remain on Nasdaq until the hearing, which should take place within the next 30 to 45 days.

Shares of Luckin Coffee were tumbling again on Thursday. The stock was down almost 29%, after reaching a low of $1.91, from an all-time high of $51.38 in mid-January of this year.

Yesterday, the U.S. Senate passed a bill that could delist Chinese stocks from American exchanges, which comes in part as a response to fraud revelations at Luckin, which caused American investors to lose billions.

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