The Luckin Coffee scandal carries the flavor of a familiar all-American scam: a high-flying Nasdaq stock with a technology hook collapses after accounting fraud is exposed. But Luckin is a Chinese company — and that highlights a unique set of risks too often ignored by U.S. investors.
These risks will make it very hard for the out-of-luck investors to recover significant sums from Luckin, which had been taking on Starbucks in China. Luckin’s shares plunged more than 90 percent after the company admitted to fabricating $300 million in revenue last year, and its stock has been halted for weeks.
Let’s start with Luckin’s ownership structure. The company listed on Nasdaq in May 2019 with a $651 million initial public offering, and followed that up with a $378 million secondary offering in January. Big investors like Blackrock jumped in.
But investors in Luckin likely failed to understand that they were not buying a piece of the company that sells lattes
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From the scandal of Luckin Coffee to the collapse of Didi, big names have dominated the discussion of Chinese companies listing on U.S. exchanges. Now, some analysts say it’s time to look more closely at the wild stock movements of several small cap Chinese companies — and the U.S. firms that advise them.
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