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Citron, Muddy Waters Clash on Twitter Over Chinese Coffee Chain

Joshua Fineman and Yueqi Yang

(Bloomberg) -- The Chinese challenger to Starbucks Corp. has found itself in the middle of an unusual debate between two outspoken short-sellers.

Luckin Coffee Inc. sank as much as 27% on Friday when Muddy Waters Capital tweeted that it has a short on the stock after it received an unattributed 89-page report that alleges accounting issues and a broken business model. Less than two hours later, Citron Research defended the coffee chain in a tweet of its own.

Muddy Waters, founded by Carson Block, said that while the report was written by an anonymous author, the work appears “credible.” Andrew Left’s Citron Research also received the report but said the findings don’t mesh with recent data indicating that Luckin’s business is “on fire” in China. Citron is long the stock.

A U.S. spokesperson for Luckin didn’t immediately respond to a request for comment from Bloomberg. Before Muddy Waters announced its short position, the shares had already lost nearly a third of their value since the outbreak of coronavirus in China. Luckin operated about 4,500 stores at year-end amid a whirlwind expansion in China, where the company hopes to upset Starbucks’ dominance. The stock is still up more than 80% since its initial public offering last May.

Short interest accounts for 29% of Luckin’s available shares, according to financial analytics firm S3 Partners.

To contact the reporters on this story: Joshua Fineman in New York at jfineman@bloomberg.net;Yueqi Yang in New York at yyang492@bloomberg.net

To contact the editor responsible for this story: Catherine Larkin at clarkin4@bloomberg.net

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