The disclosure of the fraud by Luckin Coffee LK has shaken the faith of investors in Chinese companies listed on United States exchanges, Citron Research founder Andrew Left told the Financial Times on Sunday.
"It makes you question the whole system, honestly," the short-seller told the FT. "It just shows you the lack of controls; you obviously know this wasn't done by just one person."
Left was a long-term backer of the Starbucks Corporation SBUX in China, a move out of line with his usual criticism of Chinese companies.
Luckin had been growing speedily and had reportedly crossed Starbucks in terms of numbers of stores operating in China at the end of last year. The coffee chain had reputed backers, including Blackrock Inc. BLK and Singapore sovereign wealth fund GIC Pvt. Ltd.
Left continued to back Luckin even as fellow short-seller Muddy Waters Research warned of fudged numbers in late January.
An investigation by internal auditor Ernst & Young ultimately revealed earlier this month that chief operating officer Jian Liu engaged in securities fraud.
Luckin Stock dropped more than 80% following the disclosure, and trading has been temporarily halted.
Other Chinese companies have come under increased scrutiny since.
In a report last week, Muddy Waters said Beijing-based subscription video-on-demand service iQIYI Inc. IQ has also been misrepresenting numbers since before its initial public offering in New York. The Baidu Inc. BIDU subsidiary is often referred to as the "Netflix Inc. NFLX of China."
"It seems crazy to me we're still not asking harder questions about Chinese companies that are promising incredible results," Fraser Howie, an independent commentator on corporate China, told the FT.
"To some extent I don't blame Luckin — I blame the gullible investors who have bought into it."
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