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Friday, May 17, 2024 | Back issues
Courthouse News Service Courthouse News Service

Alibaba Accused of Securities Violations

LOS ANGELES (CN) - Alibaba founder Jack Ma made $867 million selling shares in its IPO, without disclosing a host of problems, including counterfeit sales, fraud, bribery and inadequate controls, a shareholder claims in a class action.

Lead plaintiff Myrtle Chao sued the Alibaba Group, Ma, and three other company officers on Feb. 16 in Federal Court.

This is the fifth shareholder class action filed this year in U.S. courts against Alibaba, the Chinese eBay, according to the Courthouse News database. It also faces a welter of previous lawsuits accusing it of selling counterfeit goods.

Alibaba created a tizzy on Wall Street when it began offering its stock in September 2014. It calls itself "the largest online and mobile commerce company in the world in terms of gross merchandise volume."

Chao claims the defendants made false and misleading statements in SEC filings, news releases and in conference calls with investors.

She claims that Alibaba did not disclose that in July 2014, two months before its IPO, China's main corporate regulator, the State Administration for Industry and Commerce (SAIC), had given the company "'administrative guidance' about counterfeit and contraband goods sold over its platforms as well as other illegal activity, including widespread fraudulent transactions, the taking of illegal commercial bribes by Alibaba employees, and inadequate controls to prevent illegal sales and other improper activities."

Chao claims that during the IPO, Alibaba, Ma and other insiders sold more than 368 million American Depository Shares at $68, raising more than $25 million.

Ma sold 12.75 million shares for $867 million, and defendant vice chairman of the board Joseph Tsai sold 4.25 million shares for $289 million, the complaint states.

The SAIC posted a "white paper" on its web page on Jan. 28, with information about the administrative guidance it had given Alibaba in July, including accusations of "grossly inadequate and weak internal controls," commercial bribery and fraud, the complaint states. The SAIC white paper was posted in Chinese.

The Wall Street Journal and other financial media published translations from the report before the marker opened on Jan. 28, and Alibaba shares sank by $4.49 that day, or 4 percent, to close at $98.45, the complaint states.

Alibaba shares were trading at $87.08 at around 8 a.m. today, Wednesday. Its market high was $120, on Nov. 13, 2014.

Chao claims that despite Alibaba's representations, its business model is "dependent upon counterfeit sales, trademark violations, sales made through pyramid schemes, false advertising and taking bribes to give sellers preferential treatment.

Chao seeks class certification, damages for securities violations, and costs.

She is represented by Long Z. Liu, of San Gabriel.

Also named as defendants are CEO Jonathan Zhaoxi Lu and CFO Maggie Wei Wu.

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