Luckin Coffee Inc. Class Action Lawsuit
- Company Name
- Luckin Coffee Inc.
- Stock Symbol
- Class Period
- November 13, 2019 to January 31, 2020
- Southern District of New York
On February 13, 2020, the Luckin Coffee Inc. securities class action lawsuit was filed charging Luckin Coffee and certain of its officers with violations of the Securities Exchange Act of 1934. The Luckin Coffee securities class action lawsuit was commenced in the Southern District of New York on behalf of purchasers of Luckin Coffee securities between November 13, 2019 and January 31, 2020 (the “Class Period”) and is captioned Cohen v. Luckin Coffee Inc., et al., No. 1:20-cv-01293.
Luckin Coffee engages in the retail sale of freshly brewed drinks and pre-made food and beverage items in China. Luckin Coffee operates pick-up stores, relax stores, and delivery kitchens under the Luckin Coffee brand, as well as the Luckin Coffee mobile app, Weixin mini-program, and other third-party platforms that cover the customer purchase process.
The Luckin Coffee securities class action complaint alleges that throughout the Class Period, defendants made materially false and misleading statements and/or failed to disclose adverse information regarding Luckin Coffee’s business and financial condition. Specifically, defendants failed to disclose that certain of Luckin Coffee’s financial performance metrics, including per-store per-day sales, net selling price per item, advertising expenses, and revenue contribution from “other products,” were inflated, and that Luckin Coffee’s financial results thus overstated Luckin Coffee’s financial health and were consequently unreliable. As a result, Luckin Coffee securities traded at artificially inflated prices during the Class Period, with Luckin Coffee’s American Depositary Shares (“ADSs”) reaching a high of $50 per share.
Then on January 31, 2020, a research firm published an explosive report alleging that Luckin Coffee “had evolved into a fraud” by, among other things, artificially inflating its items sold per-store per-day figure by as much as 88%, overstating its net selling price per item by over 12%, and concealing that items per order had recently declined precipitously. The report reached its startling findings after mobilizing 92 full-time and 1,418 part-time employees who recorded over 11,000 hours of Luckin Coffee store traffic. According to the report, by manipulating its key operating metrics, Luckin Coffee was able to overstate its earnings and mislead investors regarding its growth trajectory, causing the price of Luckin Coffee’s ADSs to increase by more than 200% during the Class Period. And while the price was artificially inflated, management is alleged to have cashed out 49% of their own Luckin Coffee shareholdings through stock pledges (i.e., using the inflated stock as collateral for personal loans). On this news, the price of Luckin Coffee ADSs fell $3.91 per share, or 10.74%, to close at $32.49 per share on January 31, 2020.
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