Luckin Files for Bankruptcy – End of the Line?

What happens when a company commits fraud but doesn’t want to take responsibility for it? This is not financial advice, only speculation, do your own due diligence. That being said, it’s time to sell $LKNCY. The reason is simple, bankruptcy likely means this ticker will be converted to a new one and the stock could go to zero.

Luckin’s future has always been a gamble, at least this stock. Luckin Coffee is filing for bankruptcy protection. It’s another step in the convoluted saga of the embattled Chinese retail chain and a summary of Chinese problems of corruption, lack of real auditing and a lack of trust.

Luckin filing for Chapter 15 Bankruptcy is all about protecting itself, and it screws most of its investors. In July, a court in the Cayman Islands, where Luckin is domiciled, approved a request to appoint provisional liquidators in that jurisdiction. Chances are if you have invested in $LKNCY, you’ve already made money, it’s a highly volatile stock. Today it was down 15% to $6.48. It was recently $13.32. You get the idea.

This summer also saw more drama come Luckin’s way when former Chairman Charles Lu got himself removed from the Chairman position to avoid scrutiny from the investigation and then installed two hand-picked cronies to represent him on the board. Luckin has been an investor’s worst nightmare, filled with drama, uncertainty and a harshly bipolar investor community full of bears, shorts and pumpers.

Even with incredible fraud, China was not overly harsh with one of its globalization brands. Luckin stores will be fine, just not this ticker. All but the bravest investors will likely flee this stock as it’s brutally deceptive and has been a bipolar story of what it feels like to invest in a fraudulent company.

Welcome to the world of the Cayman Islands. The company has defaulted on its bonds. Bankruptcy is required to restructure those bonds. Chapter 15 in the U.S. is analogous to the well-known Chapter 11, except for foreign companies like Luckin. Most notably, the operations in China will continue through and likely after this process. Some investors will say bankruptcy in this sense was both inevitable and actually good for the future of the stock.

On June 26, the Nasdaq Exchange announced that it would delist Luckin stock three days later. Not long afterwards, traders found the stock on the over-the-counter market instead of on the Nasdaq. Now loyal investors to the fraudulent Starbucks of China find themselves holding a bankrupt stock.

Not sure how many times you’ve experienced this, but typically when companies spiral into bankruptcy proceedings, the retail shareholders almost always get the short end of the stick. That could be you.

Such a scenario is high risk and even potentially high reward. Scare tactic articles will now flood the internet. But only the most opportunistic trader will actually hold and buy on the dip. The Luckin growth story admittedly still exists. But as the report from the Cayman liquidators showed, the company remains unprofitable. If China props up this company, it will be like China saving Nio from the brink of bankruptcy not too long ago.

We could make a bull case for Luckin, but we won’t make it today. With fines from the SEC and China behind them, Luckin is also being sued by its bondholders and former shareholders. The Cayman Court has appointed two outside lawyers, or “joint provisional liquidators” (JPLs), to investigate the business in order to potentially restructure the debt so the company can continue as a going concern.

How does a company negotiate such a massive fraud story of the decade? It’s likely the end of the line for the ticker $LKNCY. Humans trying to profit from the carnage and volatility should tread carefully. Luckin was worth $50 not so long ago, next week it’s likely to be worth $4.