Chinanews Client Beijing, April 2 (Xie Yiguan) Ruixing Coffee made a cup of coffee without foam in the US capital market.

On April 2, Ruixing Coffee suddenly issued an announcement saying that a special committee had been established to investigate internal performance fraud, and stated that Chief Operating Officer Liu Jian and some employees had falsified performance of RMB 2.2 billion.

Affected by this, the stock price of Ruixing Coffee plunged 84.16% before the US stock market. After the opening of the US stock market, Ruixing Coffee plunged 80.95% to $ 4.99, a record low, and its market value evaporated by nearly $ 5 billion.

At the beginning of trading, Ruixing Coffee triggered a blowout, which fell 78.55% before the blowout. After the transaction was resumed, the fusing mechanism was triggered several times. In the 40 minutes after the opening, five fuses were triggered. As of press time, Ruixing Coffee was reported at $ 6.58, a drop of 74.89%.

Ruixing coffee intraday chart.

“Self-explosive” COOs and others forged 2.2 billion transactions

Ruixing Coffee announced on the 2nd that the company's board of directors has established an independent special committee to oversee an internal investigation. Ruixing Coffee said that during the audit of the company's consolidated financial statements for the financial year ended December 31, 2019, some issues raised the attention of the board of directors, and the special committee will monitor internal investigations of these issues.

The information identified in this preliminary stage of the internal investigation indicates that the total sales amount related to false transactions from the second quarter of 2019 to the fourth quarter of 2019 was approximately RMB 2.2 billion. During this period, certain costs and expenses have also inflated significantly due to fake transactions. The above figures have not been independently verified by the special committee, its consultants or the company's independent auditors and may change as internal investigations progress. The company is assessing the overall financial impact of misconduct on its financial statements.

The Ruixing Special Committee today drew the Board's attention to the following information: Starting in the second quarter of 2019, the company's chief operating officer and director Liu Jian and several employees who reported to him had engaged in misconduct, including fabrication of certain transactions.

According to the announcement, the Special Committee recommends certain temporary remedies, including suspension of Liu Jian and such employees suspected of misconduct, as well as suspension of contracts and transactions with identified parties involved in false transactions. The Board accepted the recommendations of the Special Committee and implemented those recommendations against individuals and parties identified to participate in counterfeit transactions. Ruixing will take all appropriate actions, including legal actions, against individuals responsible for misconduct.

The picture shows Ruixing Coffee. Photo by Wang Shanshan

Ruixing Coffee said the company is assessing the overall financial impact of misconduct on its financial statements. Therefore, investors should no longer rely on the company's previous financial statements and earnings releases for the nine months ended September 30, 2019 and the two quarters from April 1, 2019 to September 30, 2019 , Including previous guidance on product net income for the fourth quarter of 2019, and other information related to these consolidated financial statements. The investigation is ongoing and the company will continue to evaluate its previously released financial position and make other possible adjustments.

In the first three quarters of 2019, Ruixing Coffee's main business revenue was 2.929 billion yuan. Now the scale of counterfeiting of 2.2 billion yuan has approached its total revenue in the first three quarters of last year.

Report of denial of muddy water shorts in February

On January 31 this year, Muddy Waters Research stated that it had received an anonymous report on Ruixing Coffee. Muddy Water believed that the report was true and published the short report on official Twitter.

The report believes that Ruixing Coffee began to fabricate financial and operating data from the third quarter of 2019, exaggerating the daily order volume of stores, the number of products included in each order, and the net selling price of each product, thereby creating a single Illusion. By exaggerating advertising expenditures, falsely reporting the proportion of other products except coffee to cover up the loss of a single store.

The picture shows Ruixing coffee shop. Photo by Wang Shanshan

At that time, Ruixing Coffee's stock price fell by more than 20%, but the company denied the allegations.

At the time, Ruixing Coffee said that the investigation method of the report was flawed, the evidence was unconfirmed and there was a malicious and false element. But today's disclosure of its own fraudulent transactions is undoubtedly a "face" to this previous clarification.

After Muddy Waters released the report, several law firms in the United States have filed a class action lawsuit against Ruixing Coffee, accusing Ruixing of making false and misleading statements in violation of US securities laws. The class action lawsuit has been filed in the Southern District Court of New York on February 13.

Ruixing Coffee's share price plummeted, which agencies were most injured?

According to data submitted by the institution, Ruixing Coffee has previously been favored by institutional investors. In the fourth quarter of last year, institutions increased their holdings to 289 million shares, and new institutions held 145 million shares.

As of the end of 2019, the top ten institutional shareholders holding the largest holdings of Ruixing Coffee were Capital Research Global Investors, holding 60.32 million shares, followed by Lone Pine Capital, Alkeon Capital, Bank of America, and Melvin Capital Management. Corporation, UBS, Darsana Capital, Credit Suisse, Janus Henderson and Sylebra Capital.

The picture shows a corner of Ruixing Coffee Store. Photo by Wang Shanshan

On April 2, after Ruixing Coffee blew up, according to foreign media sources, a number of law firms in the United States issued statements reminding investors that the class action lawsuit about Ruixing Coffee is about to reach its deadline. Some law firms said that investors who purchased Ruixing coffee stocks from November 13, 2019 to January 31, 2020 can contact the law firm if they try to recover the losses. April 13, 2020 is the chief plaintiff deadline.

At the same time, netizens have left comments on Weibo: "Will it go bankrupt?" "Can I still have Ruixing coffee?" "Can I still get cheap coffee?" "I still have so many coupons to use."

Have you drunk Ruixing coffee? Is there any coupon useless? (Finish)