Luckin Coffee shake-up - CEO & COO terminated amid fraud probe

Luckin Coffee terminated its CEO & COO following an internal fraud probe of annual sales. Yahoo Finance's Ines Ferre discusses.

Video Transcript

ADAM SHAPIRO: Welcome back to Yahoo Finance's On the Move. There's breaking news regarding Luckin Coffee. Ines Ferre joins us now. We first learned about potential fraud in April. What's happening now?

INES FERRE: That's right, Adam. Well, Luckin Coffee announcing that the company has fired its CEO and also its COO has now resigned from the company's board as the scope of the investigation into fabricating sales has really widened. Back in April, the company had suspended its COO and some of his employees for fabricating sales. The American Depository Shares that are trading on the NASDAQ, those fell 81%. Subsequently, shares of Luckin had been halted, and you can see here that you're looking at a year-to-date chart of Luckin down 88% year to date.

You can see where back in April, beginning of April, this whole big movement happened and the stock has not reopened on the NASDAQ. It was halted at $4.39 a share. The company's offices in late April in China were raided by regulators. Luckin Coffee-- take into account this company went public last year at $17 a share, IPO-ing at $17 a share. In January, the stock price, its high price was at $51.38 a share back in January. Adam.

JULIA LA ROCHE: Yeah, and Ines it's Julia, to that point, you know a lot of folks were talking about Luckin being this formidable competitor to Starbucks. They were aggressively opening up stores. And if you look at China, it is the second-largest and the fastest-growing market for Starbucks. But I would make the case that going forward not only on the investor side you're going to see the SEC come out and talk about these issues.

But at the end of the day, what is your most valuable trait? I would argue that right now it's going to be trust, and Luckin, based on this investigation so far, has a lot of unanswered questions. And you're going to have investors and customers asking for the company to be more trustworthy and be more transparent.

INES FERRE: And Julia, to your point, also back in January Muddy Waters had published a big report on Luckin Coffee, basically calling it a fraud. You had seen that the stock went down significantly back in January, and Luckin at the time said that that was not true. Subsequently, they did this investigation and this whole fallout that you see.