Articles to Read
1. SEC Investigates Chinas Luckin Coffee Over Accounting Scandal (WSJ)
2. Luckin will be delisted after defrauding investors (CNN) – Watch the video as well
3. Luckin Coffee Agrees to Pay 180 Million-dollar Penalty to Settle Accounting Fraud Charges (SEC)
4. Coffees for Closers: How a Short Sellers Warning Helped Take Down Luckin Coffee (WSJ)
Read about the fallout of this ‘once a unicorn’ coffee company. Then participate in the discussion. In addition to the sources above, you are welcome to do your own research to learn more about this fraud.Initial/Original PostPlease respond to questions below:
The SEC press release above explains that the company tried to conceal the fraud by inflating the company’s expenses. Discuss your understanding on the mechanism through which the company can conceal the overstatement of revenue by inflating the expenses. You can think about this in contrast to last week’s Wirecard case where the company overstated the cash balance.
List and discuss the unique difficulties of detecting fraud committed by international companies listed in US stock market.
You have read about how short sellers helped reveal fraud in this case. There have been a lot of discussions about short sellers in the past few months in relation to the GameStop saga. Share your thoughts about the role of short sellers in the economy. I do not have a particular position/feelings on short sellers, so don’t afraid to take a strong stand for/against them (if you want to).
As always, discuss anything that surprised you or you noticed in particular while watching/reading about the scandal.