MILAN – Luckin Coffee Inc. is in danger of being delisted and potentially even going bankrupt following revelations of a huge accounting scandal revealed by an internal investigation. Shares of the Nasdaq-listed Chinese coffee chain lost more than 80 percent of their value last week following the news and the suspension of the company’s COO, Liu Jian.
The executive along with several employees were accused of engaging in financial misconduct involving the fabrication of transactions to bolster the company’s financial statements.
The aggregate sales associated with fabricated transactions amount to around 2.2 billion yuan ($310 million) during the April to December period last year, according to Luckin’s preliminary internal investigation, the company said in a statement said.
Following the release of its findings, the company instructed investors to no rely on its financial statements during that time.
The China Securities Regulatory Commission, the country’s top securities regulator, said on Friday that it is deeply concerned about and strongly condemns Luckin’s financial fabrication.
“The consequences may be devastating for Luckin, more than merely getting delisted,” said Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology.
It is likely possible that investors will launch a class-action lawsuit against the company for misreporting its earnings.
This could lead to the Chinese firm paying hefty compensations that may result in its bankruptcy.
Apart from the civil compensation it will likely be forced to pay, Lucking Coffee could also be facing administrative and criminal fines stemming from its misconduct. Those responsible for the fabrication will likely be also sent behind bars.