Luckin Coffee Files For Chapter 15 Bankruptcy, Capping 'Fake Sales' Scandal

Luckin Coffee, once a startup rival to Starbucks in China that has a $12 billion market value on the Nasdaq, filed for Chapter 15 bankruptcy protection in New York Friday.
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Luckin Coffee  (LK) - Get Report, the China-based rival to Starbucks  (SBUX) - Get Report that was caught in a fake sales scandal last year, filed for bankruptcy protection in the United States Friday.

Although its stores are expected to remain open in China, the Chapter 15 filing the Southern District of New York, typically used by foreign companies seeking to restructure debts from U.S. operations, caps a spectacular fall from grace since the chain debut on the Nasdaq in May of 2019 with a market value of $4.2 billion and financial backing from BlackRock  (BLK) - Get Report and Singapore's powerful sovereign wealth fund.

It raised another $1.1 billion in a secondary offering in early January and, at its peak, traded at just over $50 a share with a market value of $12 billion.

Its shares were delisted just over a year later, however, after it was unable to file an annual report for its 2019 financial year following its own investigation into fraud claims linked to an April 2020 admission that around RMB2.2 billion ($310 million) may have been fabricated in a scheme linked to its former COO.

Luckin eventually paid a $190 million fine to the Securities & Exchange Commission for the revenue overstatements.

The Beijing-based group ultimately fired CEO Jenny Zhiya Qian, as well as chief operating officer Jian Liu, after its internal investigation "brought to the attention of the Board evidence that sheds more light on the fabricated transactions" the company detailed in early April.

Research firm Muddy Waters, which is headed by Carson Block, first alerted investors to allegations of fraud a Luckin in late January, calling the company a "fundamentally broken business" that was attempting to "instill the culture of coffee into China through cut-throat discounts and free giveaways".