Congresspeople on both sides of the aisle are In response to the scandal at Luckin, Chinese regulators -- who have typically sat on the sidelines when mainland firms listed abroad are mixed up in fraud allegations -- have sprung into action with unusual alacrity to demonstrate both their concern and their determination to take punitive action against miscreants.There is a "need for the Chinese government and the nation's entrepreneurs to make their corporate governance understandable and acceptable to the rest of the world," said former central bank governor Zhou Xiaochuan, speaking at the Lujiazui Forum in Shanghai on June 18. Luckin Coffee raked in approximately $865 million from the offerings, while surplus funds amounted to $700 million in 2019 third quarter. "Meanwhile, the ripple effects of Luckin Coffee's implosion have been massive. They are bleeding-edge, not leading-edge business models. MarketWatch photo illustration/iStockphoto But then you need to wait for the network effect to kick in," said a Beijing-based executive at an international alternative investment company. It was less than a decade ago that a series of scandals involving Chinese companies going public in the U.S., some through reverse mergers, blew up — resulting in Undeterred, investors have dumped billions more into Chinese companies in recent years, even as shareholder advocates such as the As other Chinese stocks sank at the time, and investigations here and in China began; the Securities and Exchange Commission issued a warning to all investors about such stocks that boiled down to: “Buyer beware.” Yet the lesson does not seem to have sunk in even now. "They created a capital markets story, not a substantive company. "He relied on others to execute. "Lu is a street fighter. In 2015, Fei had been sentenced to 18 months in jail for breaking Chinese advertising laws.One investment banking associate who worked for one of the lead managers on Luckin's IPO said their due diligence threw up some other red flags. On top of these structural issues is the biggest problem of all: that the accountants who sign off on company financial statements in China don’t have access to those company’s actual books and records, only what they are allowed to see.“The basic problem is that they don’t have the same auditing standards that we do here,” Zarowin said. John Dinsdale, chief analyst at Synergy, said in an email that Kingsoft Cloud was No. Luckin Coffee fired its CEO after the Chinese homegrown rival to Starbucks was found to have fabricated sales. Li expressed shock at the news of the fabricated sales, according to his spokeswoman.Still, given his deep pockets, he is likely to be a target of public market investors and creditors.People who know him say that Lu is not a particularly sophisticated businessman. "As executives at the firm reviewed the coffee chain's offer memo, they felt vindicated in their decision. Luckin Coffee announced Friday that its board of directors is moving to force out director and Chairman Charles Zhengyao Lu following an internal investigation of a financial scandal… The borrowing cost could spiral, and the shares could be recalled at any time.One Hong Kong hedge fund manager says he considered shorting but decided the potential downside for his fund was too great. After the market closed in the U.S. on Friday, Kingsoft Cloud’s market valuation surpassed $4.4 billion, undoubtedly helped by the fact that it is addressing the enormous cloud-computing market in China, where the top three players in public cloud services are Alibaba Group Holdings The vast majority of its outlets were stalls where customers picked up coffee on the go, and the customer experience was mostly online. But there is no such fuzziness in public markets.

Western investors want the securities,” NYU’s Zarowin said. Luckin Coffee's co-founder is losing sleep, and it's not the caffeine keeping him up at night, but Wall Street's decision to delist his company.
All could have serious consequences for the future of Chinese companies as they try to list on international exchanges.The revelations are made more alarming by the fact that, to many, Luckin's shortcomings were clear from the start.On May 17, 2019, the day of the Luckin listing, the coffee and champagne flowed freely at Nasdaq.

Since its founding in 2017, Luckin had grown enormously fast, boasting more outlets than Starbucks and more than $1.5 billion in investments.

"It is the most risky thing in our business.

These concerns were flagged to senior management but were not seen as significant.Given these issues, why was Luckin in such a hurry to get to market?

“It’s fair to say that Kingsoft Cloud’s potential to become the AWS Lu was building a company that was not just a cheaper clone of Starbucks -- although his stated ambition was to be bigger than his American rival. But it also protects the core Chinese company through a host of offshore shell companies and subsidiaries.
David Li, another board member, had been head of Warburg's own China team between 2012 and 2016, when he left to start his own private equity company, Centurium Capital.


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