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Nasdaq tells Luckin Coffee of plans to delist the stock after sales fraud

Reinout Schakel, chief financial officer of Luckin Coffee Inc., speaks during a television interview ahead of the company’s initial public offering (IPO) at the Nasdaq MarketSite in New York, on Friday, May 17, 2019.

Victor J. Blue | Bloomberg | Getty Images

The Nasdaq Exchange has notified Luckin Coffee that it will delist the stock after the company disclosed that its former chief operating officer fabricated sales in 2019. 

Luckin said Tuesday that it plans to request a hearing before a Nasdaq panel.

The Chinese coffee chain will remain listed on the Nasdaq until the hearing panel decides an outcome. Hearings typically occur between 30 to 45 days after they are requested. It is unclear if the coronavirus pandemic will slow down that timeline. 

The exchange told Luckin that it determined it would be delisted because of public interest concerns raised by the sales fraud disclosed in April and the company’s “past failure to publicly disclose material information.”

Luckin made its public market debut on the Nasdaq more than a year ago, on May 17.

The company disclosed on April 2 that an internal probe found that Jian Liu, its COO at the time, had fabricated 2019 sales.

Trading of Luckin shares on the Nasdaq has been halted since April 7 for pending news. There is no time limit for how long a stock can be halted for that reason. Its shares had plummeted 83{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} since disclosing the fraud, putting its market value at $1 billion. 

A week ago, Luckin said that it fired its CEO and COO as part of its internal investigation into the sales fraud. The company said then that the investigation is still ongoing and it is cooperating with regulatory agencies in both the United States and China.

The coffee chain has continued to operate during the probe. 

The  2½-year-old company has tried to build a customer base in China with smaller locations formatted for convenience and offering steep discounts. In January, the company said it had more than 4,500 locations in China, several hundred more than rival Starbucks. Starbucks has responded to the competitive threat by opening cafes in China designed for quicker pickup and delivery and less seating. 

U.S. hedge fund Muddy Waters raised allegations of fraud in January and bet against the stock. Luckin denied the allegations at the time but still hasn’t said why it started its internal probe.

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