On April 2, 2020, Luckin Coffee Inc. disclosed that an internal probe found that its COO fabricated 2019 sales by about $310 million and that its prior 2019 financial results could not be relied upon. On this news, Luckin Coffee (NASDAQ: LK) stock dropped by 80%, causing harm to investors.

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Luckin Coffee Discloses That COO Fabricated 2019 Sales; Stock Drops 80%

In an SEC filing on April 2, 2020, Luckin Coffee disclosed that an internal probe found that its chief operating officer fabricated 2019 sales by approximately $310 million.

According to CNBC, the investigation found that Luckin’s chief operating officer and several employees had engaged in misconduct, including fabricating sales. Liu and the employees implicated in the misconduct have been suspended, and the company announced it plans to take legal action, according to the article.

The company also announced that investors should not rely on its prior 2019 financial statements and earnings releases for the nine months ended Sept. 30.

This new disclosure follows a January 2020 Muddy Waters research report, which described a Luckin Coffee fraud based on an anonymous 89-page report, and described the company as a “fundamentally broken business.”

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