Market Overview

Luckin Coffee Fraud Has Shaken Investor Faith In US-Listed Chinese Companies, Long-Term Backer Citron Says

Share:
Luckin Coffee Fraud Has Shaken Investor Faith In US-Listed Chinese Companies, Long-Term Backer Citron Says

The disclosure of the fraud by Luckin Coffee (NASDAQ: 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."

What Happened

Left was a long-term backer of the Starbucks Corporation (NASDAQ: 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. (NYSE: 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. (NASDAQ: IQ) has also been misrepresenting numbers since before its initial public offering in New York. The Baidu Inc. (NYSE: BIDU) subsidiary is often referred to as the "Netflix Inc. (NASDAQ: NFLX) of China."

What's Next

"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."

 

Related Articles (LK)

View Comments and Join the Discussion!

Posted-In: Andrew Left ChinaNews Short Sellers Restaurants Global Media General Best of Benzinga

Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com