When Luckin Coffee (NASDAQ: LK) (“Luckin” or the “Company”) went public in May 2019, it was a business
attempting to instill the culture of drinking coffee into Chinese consumers through cut-throat discounts and free
giveaway coffee. Right after its IPO on NASDAQ, the Company had evolved into fraud by fabricating financial
and operating numbers starting in the 3rd quarter of 2019. It delivered a set of results that showcased a
dramatic growth in its revenues and sent its stock price up over 160% in a little over 2 months. Not surprisingly,
it wasted no time to successfully raise another $1.1 billion in January 2020. Luckin’s management knew what
investors were looking for, how to position itself as a growth stock with a fantastic story, and what key metrics
to manipulate to maximize investor confidence.
How could this ad have been avoided? Will it impact future Chinese company IPO listings in the
United States? Were there any red flags you spotted in their reported numbers?
Sample Solution