Investors in Luckin Coffee (LKNC.Y -1.15%) haven't been able to catch a break lately. After having denied allegations from a short-selling specialist early in 2020 as being "unsupported speculations and malicious interpretations of events," the Chinese coffee company announced on April 2 that it would conduct an internal investigation into fraud allegations concerning large fabricated transactions. That sent share prices down more than 80%.

In the aftermath of those allegations, Luckin shareholders had to deal with another problem: a trading halt. Before the market opened on Tuesday, April 7, the Nasdaq Stock Market halted trading in Luckin Coffee shares. That prevented shareholders from selling off their stock, as well as keeping would-be buyers from investing in the coffee company. With the trading halt having lasted for the remainder of the week, the question many people are asking is whether they'll ever see Luckin Coffee's stock trade on the public markets again.

Person holding out a cup of coffee in a Luckin-logoed cup.

Image source: Luckin Coffee.

What a trading halt is

Trading halts happen all the time, and they're designed to make it easier for investors to respond to important developments. Most commonly, when a company anticipates that it will have a major news announcement, it'll work with stock exchanges to arrange for a short halt.

The halt ensures that all investors have a chance to find out about the news, analyze it, and determine how they want to respond. It puts everyone on an even playing field, preventing those with superior research tools from taking advantage of those with less sophisticated resources at their disposal.

An unusually long halt for Luckin

When Luckin Coffee's trading halt first started on April 7, it came with the guidance that its purpose was for "news pending." Although that created speculation about exactly what the news might be, it nevertheless looked completely routine, with the expectation that investors would be able to trade the stock within an hour or two once the news actually came out.

Indeed, there was one piece of news that people found out about anyway that seemed like it might be what prompted the halt. Late on Monday, April 6, Goldman Sachs said that it had extended more than $500 million in margin loans to a borrower that founder Lu Zhengyao's family trust controlled, and in order to pay off the loan, Goldman had seized a massive percentage of Luckin's total outstanding shares.

Yet despite that news seeming like the obvious cause for the halt, the stock never opened on Tuesday. It remained halted on Wednesday as well, and neither did any trading happen on Thursday. Those wanting to buy or sell shares had no opportunity to do so.

Unanswered questions

The only new piece of information came from Nasdaq late Thursday. The stock exchange said that it had changed the particular type of trading halt for Luckin from "news pending" to "additional information requested." The press release referred to a request for information that the stock exchange had made, and it stated that the trading in the stock would remain halted until Luckin Coffee satisfies its information request.

Currently, Luckin's halt is only tied to Nasdaq itself. In the past, though, some stocks have had their trading suspended by the U.S. Securities and Exchange Commission, and that can lead to extremely long periods of time during which shareholders can't make trades. One recent example involves a company called ZOOM Technologies, which the SEC suspended because of the confusion that resulted from its having such a similar name to Zoom Video Communications (ZM 0.94%). Trading stopped on March 26 and was scheduled to resume on April 9, but news sources didn't report any trading activity that day, either.

Based on current information, it seems likely that Luckin Coffee stock will trade again at some point. If the Chinese company can't satisfy Nasdaq, then trading might eventually happen in over-the-counter transactions rather than on the exchange. Until the Goldman situation gets resolved, though, those wanting to buy or sell Luckin Coffee shares might have to keep waiting.