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Law360 (June 23, 2020, 3:50 PM EDT ) Chinese coffee retailer Luckin Coffee Inc., which is already in hot water for alleged fraud leading to its ill-fated initial public offering, said Tuesday it received another warning from Nasdaq threatening to delist its stock — this time for failing to file its annual report on time.
Beijing-based Luckin said a June 17 notice from the Nasdaq Stock Market's listing qualifications staff cites the coffee chain's failure to file its 20-F annual report for the year ended Dec. 31, 2019, as additional basis for delisting its shares. Publicly traded companies are required to file annual reports with the U.S. Securities and Exchange Commission.
Nasdaq last month said it intended to delist Luckin shares over allegations that the company fabricated sales and failed to make certain disclosures required of a public company. Luckin, a startup that seeks to rival Starbucks, is appealing Nasdaq's action. Regarding the latest threat, Luckin cited pandemic-related obstacles and investigations for the delayed filing of its report.
"The company has been working diligently to explore possible ways to file the annual report as soon as possible," Luckin said in a statement on Tuesday. "However, the company has not been able to file the annual report due to the impact of the delayed financial statement preparation process caused by COVID-19 and the pendency of the previously disclosed internal investigation."
Nasdaq declined to comment.
Nasdaq last month determined that Luckin should be delisted, citing the coffee chain's disclosure that up to $310 million of its sales last year were fabricated by some employees. Nasdaq also cited Luckin's past failure to "publicly disclose material information."
Shareholders are also suing Luckin, alleging that the company's negligence and misinformation caused its stock to nosedive. Private equity-backed Luckin last year raised $651 million in an IPO that priced at $17 per share. Shares of Luckin, which have plummeted this year since peaking above $50 in January, fell another 48 cents, or 15%, to $2.70 in Tuesday trading on Nasdaq.
Luckin, for its part, said it has been cooperating with investigations by U.S. and Chinese regulators. The company's board of directors last month also terminated CEO Jenny Zhiya Qian and Chief Operating Officer Jian Liu following internal investigations into fabricated transactions.
In the meantime, legislators have been stepping up efforts to increase scrutiny of Chinese companies that list on U.S. exchanges, arguing that many are not complying with the same transparency standards of other foreign issuers whose stock trades in the U.S.
The U.S. Senate last Month passed a bill that would authorize the SEC to delist a company if it refuses to allow U.S. audit inspectors access to its books for three straight years. Similar legislation has been introduced in the U.S. House of Representatives.
Nasdaq is separately proposing to tighten its listing standards to ensure that foreign issuers including Chinese companies increase their compliance with U.S. regulations.
--Editing by Rebecca Flanagan.
For a reprint of this article, please contact reprints@law360.com.
