Investment Funds Told They Can’t Intervene in Luckin Coffee Settlement With Other Investors

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Investment funds that attempted to intervene in and then opt out of a class action settlement between now-bankrupt Luckin Coffee and investors who allege the company lied about its sales have been denied by a federal judge.

In New York on Tuesday, U.S. District Judge John P. Cronan approved a proposal from Luckin, along with lead Plaintiffs Sjunde AP-Fonden and Louisiana Sheriffs’ Pension & Relief Fund’s, to notify class members about provisional settlement of class certification, and denied bids by Winslow Funds and several other investment funds that wanted to intervene in the Luckin Coffee settlement, Law360 reported.

Cronan ruled that although the investment funds all had parallel lawsuits against Luckin, only the lead Plaintiffs had been permitted by the U.S. Bankruptcy Court to participate in settlement negotiations. That was because Luckin had issued an automatic stay on other litigation while the company was a debtor in a provisional liquidation in the Grand Court of the Cayman Islands, Law360 reports.

“The proposed intervenors have made clear that they intend to opt out of the class and that their primary ‘interest’ purportedly justifying intervention is their own parallel lawsuits, all of which have been stayed as to Luckin in light of Luckin’s bankruptcy,” Cronan wrote. “Courts regularly hold that one who opts out of the class lacks standing to object.”

Investors filed the class action against Chinese coffee company Luckin in 2020 after a short-selling firm released an anonymous report accusing the company of fabricating financial performance metrics in 2019.

In April 2020, Luckin announced it had suspended Chief Operating Officer Jian Liu after finding that he and a number of his subordinates “had engaged in certain misconduct, including fabricating certain transactions.”

The company admitted to faking about $300 million in sales and told investors not to rely on nine months’ worth of 2019’s financial statements and earning releases, Law360 reports. After the news broke, its share price fell more than 75 percent.

In May 2020, Luckin fired Liu and CEO Jenny Zhiya Qian, and later emails were released showing Chairman Charles Zhengyao Lu gave direct orders to commit accounting fraud. Luckin was delisted from the Nasdaq.

Lead Plaintiffs Swedish pension Sjunde AP-Fonden and the Louisiana Sheriffs’ Pension & Relief Fund, along with Bernstein Litowitz Berger & Grossmann LLP and Kessler Topaz Meltzer & Check LLP, alleged that Luckin’s registration statements contained material misstatements and violated the SEC.

Luckin and the investors reached an agreement for class certification so they could work on the Luckin Coffee settlement on March 5, and Luckin filed a suggestion of bankruptcy on March 31, notifying the court of an automatic stay of any parallel suits in the litigation, Law360 reports.

Since then, a stipulation and proposed order was sent out to the class to notify them and allow them to opt out, which is when Winslow and others filed motions to intervene – which have now been tossed out.

Have you ever visited a Luckin coffee shop? Did it rival Starbucks? Let us know your thoughts in the comments section!

Winslow Funds is represented by Frank T.M. Catalina of Rolnick Kramer Sadighi LLP.

The investors are represented by Salvatore J. Graziano, John Rizio-Hamilton, Jai Chandrasekhar and Kate W. Aufses of Bernstein Litowitz Berger & Grossmann LLP and Sharan Nirmul, Gregory M. Castaldo, Richard A. Russo Jr., Lisa M. Port and Nathan A. Hasiuk of Kessler Topaz Meltzer & Check LLP.

Luckin Coffee is represented by Lawrence Portnoy, Brian S. Weinstein and Jonathan K. Chang of Davis Polk & Wardwell LLP.

The Luckin SEC Class Action Lawsuit is In re: Luckin Coffee Inc. Securities Litigation, Case No. 1:20-cv-01293, in the U.S. District Court for the Southern District of New York.

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