Nasdaq plans to delist China’s Luckin Coffee

Following allegations of fabricated sales and disclosure failures, Nasdaq has informed Luckins Coffee (LK) of its plans to delist the company, this was announced by the company on Tuesday. Shares of Luckin were suspended on April 7 after it was disclosed that some of its management and employees fabricated sales from last year.

It was reported by Reuters on Monday that Nasdaq has tightened its listings rules, with an intention to curb initial public offering (IPOs) of Chinese companies that are not transparent enough about their accounting.

According to Luckin nearly 2.2 billion yuan (approximately $310 million) in sales were fabricated in 2019. This was discovered after an internal investigation conducted by the company, which has since led to the dismissal of its chief executive and chief operating officer. Six other employees allegedly said to have been involved in the scandal in one way or the other have been suspended while investigations continue. Luckins company disclosed this on May 12.

In Nasdaq’s delisting notice to Luckin, the issue of public interest concerns was cited, stating the company’s failure disclose information of the scandal early enough.

Luckin resumed public trading on Nasdaq on Wednesday, after being suspended since April 7. Its shares have since plunged 36%. Before the delisting process is completed, Luckin has been granted 45 days to continue trading pending on the outcome of the investigation.

As it currently stands, investors are racing out of the company for fear of what may happen to their share if the company gets delisted or even worse. The Chinese coffee chain that was once priced at $12.7 billion has dramatically dropped to $731.5 million.

The company has said it is in full cooperation with regulatory agencies in both the United States and China. It plans to request a hearing to appeal the decision while it continues trading on Nasdaq for the time being.

Luckin Coffee, a Chinese coffee chain was founded in June 2017. It has since matched the performance of Starbucks (SBUX) in China and had one of the most successful United States IPO by a Chinese company in 2019.

The Luckins scandal has drawn public attention to the need to scrutinize foreign companies raising money publicly in the United States, with major emphasis on China. The US Senate passed a bill on Wednesday to delist some Chinese companies from American stock exchanges. The Nasdaq has also proposed stricter listing standards for foreign companies in areas that have “secrecy laws, blocking statutes, national security laws, or other laws or regulations restricting access to information by regulators of US-listed companies.”

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