Last week, on December 16, 2020, Chinese-based coffee chain Luckin Coffee Inc. (“Luckin”) agreed to a $180 million settlement with the United States Securities and Exchange Commission (“SEC”). Luckin’s American Depositary Shares traded on the Nasdaq until July 13, 2020. The settlement stems from allegations that Luckin defrauded investors by materially misstating revenues, expenses, and net operating losses. The SEC’s complaint alleges that these fraudulent accounting actions were taken in an attempt by Luckin to increase profitability and meet earnings estimates.
The case is a reminder of risks associated with investing in U.S. listed companies with Chinese operations, which the SEC flagged in a June 2011 bulletin and a December 2018 cautionary public statement. The case follows a number of SEC enforcement proceedings brought in 2011-2012 featuring trading halts or delistings of at least 50 companies in those years.
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