Luckin Coffee Inc. (NASDAQ:LK) is a Chinese coffee company which manages more than 4,000 stores in China. On 2nd April 2020, an internal investigation found that its Chief Operating Officer had fabricated the company's 2019 sales by around US$310 million. The market reacted immediately to the investigation announcement. Subsequently, NASDAQ gave the company a delisting notice and imposed a trading halt from 7th April to 19th May 2020. The following table provides data on Luckin Coffee and trading around the date. Date NASDAQ:LK (USS) Shares (in mil) Shanghai-Shenzen Index 3625.12 24/03/2020 27.45 96.886 25/03/2020 28 96.886 3722.52 26/03/2020 27.88 96.886 3698.05 27/03/2020 25.63 96.886 3710.06 30/03/2020 25.6 96.886 3674.11 31/03/2020 27.19 96.886 3686.16 1/04/2020 26.2 96.886 3675.08 2/04/2020 6.4 96.886 3734.53 3/04/2020 5.38 96.886 3713.22 7/04/2020 NA - TRADING HALT 96.886 3798.02 NA - TRADING HALT 96.886 3780.34 19/05/2020 NA-TRADING HALT 96.886 3956.25 20/05/2020 2.82 96.886 3935.22 21/05/2020 2.01 96.886 3913.8 A. Conduct an event study to quantify the financial damage resulting from the fraud. Detail and explain your steps and calculations. (6 marks) B. How might a Court of Law rely on your analysis above to quantify the financial loss to the shareholders? Explain. Your explanation should include discussion about market efficiency and the difference between the financial impact and the actual fraud amount of $310 mil. (4 marks) Luckin Coffee Inc. (NASDAQ:LK) is a Chinese coffee company which manages more than 4,000 stores in China. On 2nd April 2020, an internal investigation found that its Chief Operating Officer had fabricated the company's 2019 sales by around US$310 million. The market reacted immediately to the investigation announcement. Subsequently, NASDAQ gave the company a delisting notice and imposed a trading halt from 7th April to 19th May 2020. The following table provides data on Luckin Coffee and trading around the date. Date NASDAQ:LK (USS) Shares (in mil) Shanghai-Shenzen Index 3625.12 24/03/2020 27.45 96.886 25/03/2020 28 96.886 3722.52 26/03/2020 27.88 96.886 3698.05 27/03/2020 25.63 96.886 3710.06 30/03/2020 25.6 96.886 3674.11 31/03/2020 27.19 96.886 3686.16 1/04/2020 26.2 96.886 3675.08 2/04/2020 6.4 96.886 3734.53 3/04/2020 5.38 96.886 3713.22 7/04/2020 NA - TRADING HALT 96.886 3798.02 NA - TRADING HALT 96.886 3780.34 19/05/2020 NA-TRADING HALT 96.886 3956.25 20/05/2020 2.82 96.886 3935.22 21/05/2020 2.01 96.886 3913.8 A. Conduct an event study to quantify the financial damage resulting from the fraud. Detail and explain your steps and calculations. (6 marks) B. How might a Court of Law rely on your analysis above to quantify the financial loss to the shareholders? Explain. Your explanation should include discussion about market efficiency and the difference between the financial impact and the actual fraud amount of $310 mil. (4 marks)
