Kynikos founder Jim Chanos covered his Luckin short position pre-market

Jim Chanos, Kynikos Associates founder, joins 'Fast Money Halftime Report' to discuss his short positions and his investment strategy given the market volalitity on the coronavirus pandemic.

Kynikos Associates Founder Jim Chanos told CNBC on Thursday that he just closed a bet against Chinese coffee chain Luckin on Thursday after first taking a short position earlier in the year on advice from fellow short-seller Carson Block and his firm, Muddy Waters Research.

Luckin Coffee is down more than 70% on Thursday after it revealed in a government filing that its chief operating officer fabricated 2019 sales by about 2.2 billion yuan ($310 million).

“We were short thanks to Muddy Waters, who urged me to take a look at it back in February,” Chanos said. He added that his fund covered the short position in pre-market trading on Thursday.

The 2½-year-old company, which had aspirations to overtake Starbucks as China’s top coffee chain, advised investors against relying on its financial statements and earnings releases for the nine months ended Sept. 30.

“Luckin’s a great example of — when people talk about banning short selling or restricting short selling. This stock was being talked about by the fundamental short sellers in the community in January and February as a fraud,” Chanos said. “It’s one of the things that short-sellers do: They’re the real-time financial detectives.”

Muddy Waters, led by founder and Chief Investment Officer Carson Block, said on Jan. 31 that it was short Luckin after reviewing an 89-page report alleging the company’s practices were fraudulent. Block rose to prominence nine years ago when Muddy Waters published a negative report on Chinese company Sino-Forest, which was ultimately delisted from the Toronto Stock Exchange.

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