Cooking the books at Luckin and TAL
Bad Luckin: After crashing 83%, Nasdaq stopped trading in Luckin Coffee’s shares today.
Bloomberg reports (porous paywall):
China’s second accounting scandal in less than a week is underscoring concern over lax corporate governance at some of the country’s fastest-growing companies.
TAL Education Group, a tutoring business whose success turned founder Zhang Bangxin into one of China’s richest people, delivered the latest bombshell on Tuesday after saying a routine internal audit found an employee had inflated sales by forging contracts. The company’s American depositary receipts sank as much as 18% in late U.S. trading.
The sell-off follows the 83% slump in Nasdaq-listed Luckin Coffee Inc. since the company announced that its chief operating officer and some underlings may have fabricated billions of yuan in sales for 2019. Accounting firm Ernst & Young later said it discovered the fabrications when it audited the firm’s financial statements. Trading in the ADRs was suspended Tuesday.
Why are these accounting scandals significant? Because they “may put [a] lasting stain on China Inc. listings,” according to Bloomberg, via Yahoo.
Who is next?
“Will iQiyi be the next Luckin?” asks Caixin:
Chinese video streaming platform iQiyi has refuted a report by short seller Wolfpack Research accusing it of fabricating revenue and user numbers.
On Tuesday, Muddy Waters tweeted that it helped Wolfpack Research prepare the report targeting iQiyi and that it takes a short position on the Chinese company.
—Jeremy Goldkorn
