Luckin Coffee Board Fails in an Attempt to Remove Chairman
Charles Zhengyao Lu is keeping his job at Luckin Coffee (OTC:LKNC.Y), the company announced in a regulatory document filed after market hours on Thursday. Its board of directors held a meeting to remove him as board member and chairman, but the board did not gain the two-thirds majority needed to eject Lu.To get more news about
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The move will be seen as the latest setback for the troubled Chinese coffee maker and retailer. This cascade of problems began early this year with the revelation that it inflated the equivalent of several hundred millions of dollars in both revenue and expenses. The CEO and COO at the time, Jenny Zhiya Qian and Jian Liu, respectively, were both fired as a result.Subsequently, in a related controversy involving Lu, a private company he controlled defaulted on a $518 million margin loan provided by a syndicate of banks. The loan was collateralized by 611 million Luckin Coffee shares, which were seized by the banks.
Finally, the precipitous drop in the company's share price led Nasdaq to delist the stock; it now trades over the counter.
Meanwhile, an internal investigation into the scandal found that Qian and Liu were involved in the malfeasance, in addition to lower-ranked employees and outsiders. Luckin Coffee said it has fired 12 employees over this, and will discipline 15 more. The company is also ending its relationships with the outside entities that participated.On Thursday, Luckin Coffee's shares declined by almost 3.5% in contrast to the gains enjoyed by the wider stock market.
On Friday, the China-based company issued a press release stating that its board of directors aims to remove Charles Zengyao Lu as its chairman and board member, in accordance with its articles of association. The board has scheduled a meeting for next Thursday, July 2, to consider -- and presumably vote on -- the proposal.
Lu's resignation has been requested by a majority of the board's members. It is based on recommendations from the board's special committee, which in turn stems from an internal investigation on the company's accounting scandal. The company's COO at the time, Jian Liu, allegedly inflated the company's 2019 revenue by the equivalent of around $309 million. This was the matter that tarnished the company's reputation.Since then, things have gone from bad to worse. In April, a syndicate of banks seized almost 611 million Luckin Coffee shares held by a company controlled by chairman Lu, after the company defaulted on a $518 million margin loan.
And earlier on the same day the board's meeting on Lu's fate was announced, Nasdaq suspended the company's shares from trading on the exchange. The move will come into force this Monday, June 29, and will ultimately lead to delisting.Understandably, Luckin Coffee's shares dropped off a cliff on Friday. They declined a whopping 54% on the day, a far steeper fall than even the hardest-hit consumer goods companies, not to mention the broader stock market in general.
