Why do Chinese frauds like Luckin Coffee keep popping up on American exchanges? The answer lies with the Chinese Communist Party.
As if stealing intellectual property, forced organ harvesting and a deadly coronavirus weren’t bad enough, openly fraudulent stock listings are the latest nightmare to come out of China. And the Communist Party is doing nothing to stop it. Well — actually, they are the ones encouraging it.
Luckin Coffee (NASDAQ: LK), a multi-billion dollar Starbucks (NASDAQ: SBUX) copycat, is the latest Chinese scam company to plague U.S. exchanges.
The company has allegedly fabricated almost half of its sales. And The stock has plunged over 80% from its 52-week highs to just $4.40 before being halted on the NASDAQ. But this isn’t the first time American investors have seen their equity vanish due to Chinese fraud. It’s time to hold the Communist Party Accountable.
In 2017, Magnolia Pictures produced a documentary film called “The China Hustle.” It depicts systematic securities fraud where American investment banks routinely hype up Chinese companies and market them to American investors only to later find out that the companies are scams. This is something that has been going on for a long time. And it’s no longer a secret.
According to the documentary, these companies have collectively stolen more than $200 million over a decade. Luckin Coffee is the latest Chinese company to exploit America’s unwillingness to hold Beijing accountable for these crimes.
On April 2, a special committee found that the company’s COO Jian Liu and several other employees fabricated transactions of up to $310 million (roughly half of sales).
On Tuesday, NASDAQ halted trading of Luckin Coffee pending additional news updates. But the damage has already been done. American investors who put money into the sham company will probably never recover their losses.
As with most of the problems coming out of China in 2020, this can be traced back to the Chinese Communist Party. Incompetent American financial institutions that failed to do their due diligence also bear some responsibility. Chinese fraud companies are so common at this point that it’s stunning to see respected investment houses like Goldman Sachs falling for the bait.
But ultimately, the CCP is at fault for creating an enabling environment for fraudulent companies to thrive.
According to The Wall Street Journal, the Chinese government uses its national security privilege to block the SEC from reviewing audits of China-based companies that operate in the U.S. The CCP also neglects to prosecute the perpetrators of these frauds, allowing them a free pass to scam American investors while facing no consequences at home.
In the classically spineless manner that has come to define America’s relationship with China, American authorities have allowed these unfair terms — thus exposing U.S. investors to an unacceptable level of risk on public exchanges.
Tom Cotton, an outspoken China critic who famously called Wuhan coronavirus a leaked bioweapon, is one of the few American leaders bringing attention to China’s repeated abuses of the American investment community.
He and Senator Marco Rubio have proposed the “equitable” act, which would de-list Chinese companies that are out of compliance with U.S regulations for a period of three years.
The legislation intends to force the Chinese government to change its policies and allow the SEC to get full access to audit reports for companies headquartered in Hong Kong and mainland China. The Luckin Coffee disaster is further impetus to pass such legislation.
Meanwhile, in China, Luckin has become a Robinhood-like national hero. The company’s mobile app has soared in popularity — becoming the second most downloaded in China this week as Chinese consumers rush to take advantage of its free coffee perk before the company goes bust.