On May 15th, according to the Wall Street Journal, the Hong Kong High Court held a hearing this Friday. A group of bondholders of Luckin Coffee Inc. (LK) has obtained a court order. Luckin is in the Cayman Islands And the assets of Hong Kong, China will be frozen.
The Wall Street Journal said that bondholders filed a civil lawsuit earlier this week, demanding that they recover about $ 155.7 million of the losses they suffered. The related loss occurred after Ruixing disclosed financial fraud of sales revenue of 2.2 billion yuan on April 2. The freeze order will restrict Ruixing from any asset sale or transfer between entities registered in the Cayman Islands and Hong Kong, China.
The Wall Street Journal claims that the parent company registered in the Cayman Islands and its subsidiary company registered in Hong Kong, China have a contractual relationship with Ruixing Coffee ’s operating entity in Mainland China. With this so-called variable equity entity structure, the company can list overseas while retaining control of the business.
According to the court decision, the freezing order will be maintained until the courts of both places make further rulings.
Bondholders also applied for disclosure of a list of assets valued above USD 10,000 held by Ruixing and its subsidiaries. It was decided at the hearings held in the Cayman Islands and Hong Kong, China. Bondholders include several U.S. and Asian hedge funds and asset management companies, who hold convertible bonds with nearly USD 200 million in face value.
Rui Xing Coffee is headquartered in Xiamen, Fujian, and started trial operation in January 2018. In November 2017, Qian Zhiya stepped down as the director and COO of UCAR, and left the business to establish Ruixing Coffee. Through its “crazy” store opening and user subsidies, Ruixing Coffee, which has been established for two years, not only quickly established a foothold in the Chinese coffee market, but also landed on NASDAQ in May 2019 with the fastest IPO of Chinese stocks.
On April 2 this year, Ruixing Coffee announced that the self-examination found that the company ’s chief operating officer Liu Jian was fraudulent in finance and involved approximately 2.2 billion yuan in transaction value. Special committee to conduct internal investigations. In addition, a number of law firms in the United States initiated class actions against them, accusing Ruixing Coffee of making false and misleading statements that violated US securities laws.
After the news came out, Ruixing Coffee’s stock price plummeted. Since Nasdaq asked Ruixing Coffee to provide more information, the stock has been suspended since April 7, and its final transaction price is $ 4.39, with a market value of only $ 1.1 billion.
According to Peng Mei News previously citing foreign media reports, an insider said that the US SEC is investigating the financial fraud of Ruixing Coffee employees. The China Securities Regulatory Commission has also publicly stated that since Ruixing Coffee has exposed its financial fraud, it has expressed its solemn position and communicated with the US Securities Regulatory Commission on cross-border regulatory cooperation matters. China Securities Regulatory Commission also said that the US Securities Regulatory Commission has made a positive response.
Although the company ’s internal investigation has not reached a conclusion, the management of Ruixing Coffee has shaken recently. On the evening of May 12, Beijing time, according to the documents submitted by Ruixing Coffee to the US Securities and Exchange Commission (SEC), the company’s board of directors has terminated the positions of chief executive Qian Zhiya and chief operating officer Liu Jian. It was the application of the two to withdraw from the board of directors. According to the company’s internal investigation, in addition to Qian Zhiya and Liu Jian, the company also suspended the work of six other employees who participated in or learned about financial fraud, or required them to take leave.
At the same time, Lu Zhengyao, chairman of the company, also left the “Nomination and Corporate Governance Committee.” Although Ruixing Coffee did not directly point out the exit of Lu Zhengyao in the announcement, the name of Lu Zhengyao is no longer in the “Nomination and Corporate Governance Committee”, but is composed of independent director Zhuang Weiyuan, founder of Dazheng Capital Li Hui and Guo Jinyi .
On the night that the CEO and COO were suspended, the president office of Ruixing Coffee also issued an internal letter, saying that since the fraud, Ruixing Coffee has fallen into The unprecedented crisis has affected the brand image and reputation, and apologized to the employees for their troubles.
The internal letter also stated that the incident investigation is still in progress and the company will cooperate with the investigation. The new management will reorganize the company structure as soon as possible, reshape the corporate culture, strengthen internal control to ensure legal compliance, and maintain stable operation.