Banks Gain Right to Liquidate Millions in Luckin Coffee Stock Owned by Chairman

SophieL

Charles Lu tries to retain control over the board as court proceedings sympathize with lenders.

On April 2, Luckin Coffee disclosed that as much as $310 million of its 2019 sales were faked, which caused Luckin’s shares to fall, executives to leave, and authorities to investigate. Courts ruled in banks’ favor, allowing them to liquidate tens of millions of dollars in Luckin Coffee, Inc. stock owned by Chairman Charles Lu. 

Following Lu’s default on a margin loan facility, the Grand Court of the Cayman Islands ruled in favor of the lenders, who are now owed $324 million. Another ruling called for 131.25 million class B shares to be transferred within two business days out of Primus Investments Fund SP, which is controlled by Lu’s family trust. KPMG will receive these shares, worth around $63 million, for liquidation. 

Lu and his family have held the largest quantity of shares in Luckin. In March, Lu controlled around 36.8% of Luckin’s voting rights, which will decrease as he loses class B shares that award ten times the voting rights of ordinary shares. The court decisions could weaken Lu’s control over the company as crucial shareholders prepare to vote.

Mayer Investments Fund LP, controlled by Suying Wong, Lu’s sister, received an order to wind up as well. Mayer owns 196.88 million class B shares of Luckin. Lenders have filed against Haode Investment Inc., also held by the Lu Family Trust. Luckin Coffee, Inc.’s market value fell below $1 billion on Friday, far from its past worth of $12 billion. 

Luckin went public on Nasdaq Stock Market in 2019, but Nasdaq recently moved to delist Luckin. Luckin’s hearing is scheduled for June 25 to appeal the decision. Charles Lu has lost shares and company control, and it remains to be seen how the proceedings will play out. 

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