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Why Luckin Coffee Stock Dropped Today

By Joe Tenebruso – Jun 8, 2020 at 6:15PM

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Things are going from bad to worse for the beleaguered Chinese coffeehouse chain.

What happened

Shares of Luckin Coffee (LKNC.Y -5.12%) fell nearly 13% on Monday following reports that its chairman and largest shareholder could face criminal charges. 

So what

Chairman Lu Zhengyao (who also goes by the name Charles Lu) will reportedly face criminal charges in China after authorities found emails that he allegedly sent to Luckin employees instructing them to commit fraud, according to Chinese news service Caixin.

A stock chart that falls, then rises, then falls again.

More bad news drove Luckin Coffee's stock lower on Monday. Image source: Getty Images.

Luckin admitted on April 2 that it had fabricated sales transactions totaling as much as $310 million from the second quarter of 2019 to the fourth quarter. The struggling Chinese coffeehouse chain is already without its CEO and chief operating officer after both executives were removed from their positions for their alleged roles in the accounting scandal.

Now what

If Zhengyao does in fact face criminal charges, he likely won't be able to help oversee Luckin's turnaround efforts. At that point, Luckin would be without three of its most senior leaders -- a void that comes at a terrible time for the struggling company.

That said, removing those who were responsible for Luckin's accounting schemes could be a step in the right direction if new leaders can help to restore the integrity of the company's operations and its accountability to its stakeholders.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Luckin Coffee Inc. The Motley Fool has a disclosure policy.

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