Luckin Coffee Inc disclosed Friday that its board of directors has recommended ousting its chairman, Charles Zhengyao Lu, after an internal investigation into the alteration of the yearly sales data of the troubled coffee chain.
The stock of the China-based group settled down 54 percent Friday after it said its securities would be suspended from next week's trading on the Nasdaq as it withdrew a request for a hearing with the American stock exchange on notice of delisting.
Nasdaq's reasons for the delisting include market issues posed by the fraudulent transactions, failure by the firm to reveal relevant details and to submit its annual report.
Luckin's board will require Lu to step down, adding to the fallout from an accounting controversy that has jolted the one-time market favorite. The Xiamen-headquartered retailer faces scrutiny from Chinese and US regulators after admitting that it fabricated transactions to jack up revenues.
Luckin's chief operating officer at the time, Jian Liu, allegedly inflated the company's 2019 sales by the equivalent of approximately $309 million. This was the main thing that tarnished the group's reputation.
Since then, things have gone from bad to worse at Luckin. In April, a syndicate of lenders seized nearly 611 million Luckin Coffee shares held by a firm that was controlled by Lu, after the company defaulted on a $518 million margin loan.
The recommendation, in accordance with the company's articles of association, was requested by the majority of the board, and based on the results of an internal probe, Luckin divulged in a filing. The company's board of directors will conduct a special meeting regarding the issue on July 2.
The American depositary shares of Luckin Coffee advanced over 7 percent in after-hours trading on Friday after the Chinese coffee prospect announced the board's proposal for Lu's removal. Lu held around 37 percent of the voting influence of the company's equity shares as of June 26.
In a separate statement released on Friday, Luckin disclosed that Lu is considering holding another meeting on July 5 and for that meeting, the company's board is proposing a vote versus the planned removal of independent director Sean Shao, who serves as chairman of the Luckin's special panel.
Luckin Coffee, established in 2017, secured around $645 million in its US initial public offering in 2019 and counted BlackRock Inc. among its key supporters. Luckin took direct aim at Starbucks in China, with a plan to launch more shops in two years than the Seattle-headquartered giant has in 20 years.
