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Analyst Says Luckin Coffee Looked Like A Fraud From The Beginning

July 6, 2020 9:58 am
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Analyst Says Luckin Coffee Looked Like A Fraud From The Beginning

Close observers of Chinese companies were able to see "from very early on" that Luckin Coffee was engaged in fraud, Anne Stevenson-Yang, research director at J Capital Research, told CNBC on Monday.

What Happened: China-based Luckin Coffee showed investors tremendous growth prospects when it was an American-listed company.

The company's stock was ultimately delisted from the Nasdaq exchange due to 2019 sales that were fabricated to the tune of around $310 million.

This lesson serves as a "great morality tale" for markets, as not enough action is being done to protect American investors from foreign stock frauds, Stevenson-Yang told CNBC.

What makes the scandal even more concerning is that there is "no penalty for fraud" in China, she said, adding that Chinese companies benefit from "all sorts of incentives to raise money on public markets in China."

Why It's Important: This issue of rampant Chinese fraud was made obvious in 2012 with the release of the film "China Hustle," the analyst said. During the time period of the early 2010s, there was a surge in "China Hustle companies" engaged in "obvious frauds," she said. 

What's Next: Simply put, U.S. auditors need to have "immediate and thorough access" to Chinese audit papers, the analyst said.

If access is not granted, the Chinese-listed stock in question needs to be "immediately" delisted from the American exchange, Stevenson-Yang said. 

Related Links:

New Details Emerge About Luckin Coffee Short Seller's Takedown

Luckin Coffee Chairman Reportedly Ousted As Internal Probe Finds Wrongdoing

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