Alibaba faces suspicion from the SEC

Richard Frazier
Business Correspondent

Courtesy  of Wikimedia commons JACK MA founded in Alibaba 1999. The company’s IPO created billionaires overnight and made IPO history.

Courtesy of Wikimedia commons
JACK MA founded in Alibaba 1999. The company’s IPO created billionaires overnight and made IPO history.

We all remember Alibaba’s record-setting $25 billion initial public offering in September 2014 on the New York Stock Exchange (NYSE). Alibaba Group Holding Limited is a China-based online and mobile commerce company in retail and wholesale trade that also offers cloud computing and other services. The company provides technology and services to enable consumers, merchants and other participants to conduct commerce in its ecosystem.

The Securities and Exchange Commission (SEC) sent a letter to Alibaba inquiring about its sales. The letter questioned the company’s alleged sale of “fake” goods and its possible collaboration with Chinese regulators. When asked, the SEC refused to comment on whether Alibaba had actually cooperated with the Chinese regulators despite the SEC having background facts that are not available to the public. These recent allegations surfaced when China’s State Administration for Industry and Commerce published an online “white paper.” It detailed conversations two months prior to Alibaba’s IPO between Alibaba and the Chinese agency.

The Wall Street Journal summarizes Alibaba’s retort saying, “talks with the Chinese regulator came in the normal course of business and didn’t require disclosure in its IPO prospectus.” Following Alibaba’s response, the regulator removed the white paper from its website.

The company said it felt “vindicated” as the situation unfolded. Spokespeople also claimed ignorance about the “fake goods” until they read about them in online media.

There were no direct accusations in the letter from the SEC that Alibaba did anything wrong. To “help avoid false rumors or speculation,” the company reported that the right decision was to disclose the letter.

According to the article in The Wall Street Journal, “Alibaba Dealings With China Agency Draw SEC Interest,” “under U.S. securities rules, companies are expected to disclose in IPO prospectus legal matters that could be costly or damaging to the company. In the prospectus, Alibaba stated that it could face legal action, complaints to regulatory agencies, public scrutiny and reputational harm from allegation of sales of counterfeit goods or other illegal activities taking place in its online marketplaces, where some $300 billion of transactions took place in the fiscal year ended last June.”

Alibaba’s Vice Chairman Joe Tsai pointed out that the company has been working with Chinese Law enforcement agencies to handle and solve thousands of counterfeit cases that take place on Alibaba’s website. More than $160 million has been invested to fix and prevent sales of counterfeit goods. Despite these efforts, Alibaba’s stock on the NYSE has been falling since late January, a fall caused by the “white paper” disclosure and a 28 percent profit loss in the quarter.

Feb. 20, 2015