As the rest of the world deals with the outbreak and crashing economy, Luckin Coffee is in turmoil. The Chinese coffee company and coffeehouse chain was founded in Beijing in 2017. Since 2017, the chain has managed to exceed the number of Starbucks stores in China. As of 2020, it managed 4,507 stores. The 3-year-old coffee company instantly became a sensation owing to its huge success.
But the coffee giant has been facing a downward curve ever since April 2020. It was disclosed that the company’ had falsified the 2019 sales. As a result, Nasdaq exchanged aims to delist Luckin Coffee after employees falsified $310m in sales.
Touted as the Chinese rivals to Starbucks, Luckin started to offer shares i.e the IPO, to the US public in the middle of 2019. Within a few months, these shares skyrocketed as people instantly jumped on this opportunity. And within a few months, these share prices went up about 150%. But as per reports by Muddy Water Research, it was stated that Luckin may have fabricated its sales and inflated its numbers.
Luckin Coffee Stock Drops Down To 30%
After the investigation in March, the COO admitted that the company had fabricated the 2019 sales. As a result, the Nasdaq exchange aims to delist Luckin Coffee after employees falsified $310m in sales. Since then, the stock prices have gone on a free fall and it reached a new low today. The Luckin Coffee stock dropped down to 30% on May 21, 2020.
Nasdaq has already moved to delist the company from the exchange. In addition to that, the Senate has passed a bill that could delist Chinese stocks from American companies. This comes in as a response to the fraud allegations at Luckin, which caused American investors to lose billions.
Luckin shares were down 25.9% as of 3:00 p.m. EDT, trading just north of $2 per share.
What Happens To Delisted Stocks?
When your stock is delisted, it is no longer available in the normal stock exchange where people buy/sell their stocks. In such cases, companies can be delisted due to fraud. Lihua Internation was another Chinese company that was delisted on counts of fraud. But fraud isn’t the only reason for delisting. Other reasons can occur if the company goes bankrupt or is completely dissolved.
There can be a buyout or a merger where your company combines with another one and your shares get cashed out. However, if your company merges with another public company, then your shares are transferred to that respective company.