The chairman of Luckin Coffee, touted as China's answer to Starbucks, apologised over its US$310 million accounting fraud, which has led New York's Nasdaq stock exchange to move to delist the company amid waning market trust in Chinese financial reporting.Charles Lu Zhengyao, an angel investor and serial entrepreneur, said he is "deeply disappointed and regret" the delisting decision, which the Nasdaq exchange said was based on public interest concerns over recently disclosed fabricated transactions by company staff that amounted to 2.2 billion yuan (US$310 million)."I have been in deep pain and guilt over the past month," said Lu in a statement published on Chinese social media platform WeChat on Wednesday. "I again apologise to all the investors, staff and clients of Luckin for the terrible impact of the incident."Lu, who also founded China's largest car rental company Car Inc, said he never intended to defraud investors and only wanted to build good companies and create value for society. Shares of Hong Kong-traded Car, which was not implicated in the Luckin scandal, have fallen by 52 per cent since the coffee retailer's accounting fraud was disclosed on April 1.Charles Lu Zhengyao, founder of Luckin Coffee, during the trading debut of the company's shares on Nasdaq on May 17, 2019. Photo: finance.china.com.cn alt=Charles Lu Zhengyao, founder of Luckin Coffee, during the trading debut of the company's shares on Nasdaq on May 17, 2019. Photo: finance.china.com.cnLu, who holds a master's degree in business administration from Peking University, said he has put almost all of his money, including loans he took out by pledging his shares in Luckin, into supporting his companies, and never squandered it away for personal enjoyment, according to his statement.Last month, a group of lenders sought to sell 76.4 million shares of Luckin Coffee, pledged as loan collateral, after an entity controlled by Lu family trust defaulted on a US$518 million margin loan, according to Goldman Sachs. Luckin Coffee investors rue implosion on US$400 million bond bet after accounting scandalThe Xiamen-based start-up on Tuesday evening disclosed it had received a written notice from New York's Nasdaq exchange on Friday that its listing qualifications staff has determined to delist the company's securities. Under Nasdaq rules, Luckin Coffee " which was founded in 2017 and listed in 2019 " can appeal the exchange's order, and a hearing is usually scheduled within 45 days of the appeal request.Shares of the company, halted since April 7, will resume trading on May 20 on Nasdaq, after Luckin Coffee said it would appeal. Shareholders, including Singapore's GIC, and the Qatar Investment Authority " according to exchange filings at the end of February " are almost certainly to rush for the exit when trading resumes, as Luckin Coffee faces expulsion pending the outcome of its appeal.A sign for Luckin Coffee is displayed at one of the company's outlets in Shanghai on April 3. Photo: Bloomberg alt=A sign for Luckin Coffee is displayed at one of the company's outlets in Shanghai on April 3. Photo: BloombergIts turnover was inflated by about 2.2 billion yuan between the second and fourth quarters of 2019, and certain costs and expenses were "substantially inflated" through fabricated transactions.Despite the scandal, thousands of Luckin shops are still operating, supported by tens of thousands of staff, Lu said in the statement. He believes Luckin has a sound business model and good products, and asked for "forgiveness and support from all parties".Luckin Coffee had more than 3,500 outlets globally at the end of 2019.The delisting announcement comes after new rules were introduced by Nasdaq, which will make it more difficult for some Chinese firms to float on its stock exchange. They include tougher accounting rules and a requirement that an IPO raises at least US$25 million. China's investigation of Luckin shows importance of US$7 trillion stock marketThough not directed specifically at Chinese companies, the curbs come amid escalating tension between the US and China, which spilled over from a year-long trade war into rivalry over technology and even to the exchange of blame for causing the coronavirus pandemic.The Luckin Coffee scandal, meanwhile, has put a spotlight on how much investors should trust accounting by US-listed Chinese companies, and has exacerbated caution.Over the years, short sellers have called out many companies in the forestry, advertising and online education sectors for cooking their books, including this week's allegations by Muddy Waters on online tutoring provider GSX Techedu.Investors, though, have been forewarned about accounting hurdles faced by the US Public Company Accounting Oversight Board. Many auditors in non-US jurisdictions are currently off-limits to the body, including those in China, Belgium and France, it said in an update before April 1, the day Luckin disclosed the scandal."Positions taken by Chinese authorities impede our ability to oversee PCAOB-registered audit firms in mainland China and Hong Kong," the board said "Specifically, these positions currently impair our ability to conduct inspections of the audits of public companies with China-based operations."This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.
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