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1/ The Luckin Coffee Frauduccino The fall of market darling Luckin Coffee ($LK) following allegations of financial fraud has been swift. So in this edition of Friday Funny Fraud, we will cover Luckin Coffee’s Frauduccino (as exposed by @muddywatersre). Who’s up for a story?
2/ Imagine you are the CEO of a chain of ice cream shops - The NoLuck Creamery. You make great ice cream that customers enjoy. But there’s a problem. You’re not rich. As it turns out, ice cream is just another low margin retail business. But you have an idea to fix that!
3/ You’ve seen how the public markets value fast growing retail businesses, so you decide to take NoLuck Creamery public. But you’re not a fast growing retail business...yet! To fix that, you establish NoLuck Buyer and NoLuck Supplier - two secret entities, controlled by you.
4/ NoLuck Buyer buys millions of NoLuck Creamery gift cards. And just like that, NoLuck Creamery has revenue growth! (Well, not really, just on paper, but that’s ok, you say.) You place supply orders with NoLuck Supplier (fake ones, but it can’t look like pure profit, right?).
5/ Now to get rich, you IPO NoLuck Creamery. Investors salivate at your revenue growth and outlook. You sell millions of shares in the IPO. It’s totally fake, but who cares! You’re rich! “I’ll donate to charity,” you say, as you ride your Peloton in your new home’s zen garden.
6/ Sadly for you, the joy is short-lived. While your auditors didn’t out you (huh?!), short seller Muddy Waters Research did, spending hours in NoLuck Creamery and concluding your revenue numbers were fake. “Touché, Muddy Waters,” you say, “But try my Mud Pie, it’s to die for.”
7/ While simplified, this is essentially what Luckin Coffee did - secret entities, fake orders and materials purchases. It’s delisting time! Another irresistibly funny fraud. S/O to @muddywatersre for exposing this (and many other!) cases of financial debauchery. Hat tip!

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