Luckin Coffee dug itself quite a hole.
And it may not find its way out.
Days ago, the stock plummeted 80% after the company suspended its COO and several employees for misconduct related to fabricating sales transactions. It also said investors should not rely on prior financial statements and releases for the nine months ended September 30, 2019, or the two quarters starting April 1, 2019 and ending September 2019.
Luckin also 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,” as noted by CNBC. “The company’s special committee has retained Kirkland & Ellis as its independent outside counsel and FTI Consulting as an independent forensic accounting expert.”
The company found itself in more hot water after the Chairman and CEO defaulted on a $518 million margin loan facility, says The Wall Street Journal. And banks stand to lose as much as $100 million on it. However, a group of lenders “is putting 76.3 million of the Chinese company’s American depositary shares—representing the collateral for the loan—up for sale.”
The fraud was initially highlighted by short sellers at Muddy Waters Capital.
Now, iQIYI is on the Chop Block
However, LK isn’t the only company Muddy Waters is alleging committed fraud.
According to Barron’s, Muddy Waters’ backed Wolfpack Research claims that iQIYI (IQ) may be guilty of wrongdoing, as well. “Like so many other China-based companies who IPO with inflated numbers, [iQIYI] is unable to legitimately grow their business enough to true up their financial statements,” the firm wrote.
Wolfpack alleges that IQ inflated its 2019 revenue by 8 billion to 13 billion yuan ($1.14 billion to $1.85 billion) to 44%. It’s also alleging IQ overstated user numbers by 42% as well. However, IQ notes the findings contain, ““numerous errors, unsubstantiated statements and misleading conclusions and interpretations.”
To date, IQ has pulled back on the report. Stay tuned for more on this developing story.
