SEC asks for more Alibaba info

Request follows SAIC spat over fake goods

Chinese e-commerce giant Alibaba Group Holdings said over the weekend that it had received a letter from the US Securities and Exchange Commission (SEC) requesting information about its dealings with Chinese regulators over alleged sales of counterfeit products.

The SEC letter asked for "background facts and other information related to our interaction with China's State Administration for Industry and Commerce [SAIC]," the company said in a statement e-mailed to the Global Times Saturday.

The statement said that Alibaba is cooperating with the SEC's request, without detailing specifically what the US regulator wanted.

The SEC could not be reached for comment by press time, but Alibaba said the SEC had not accused it of any wrongdoing, and the request contained no allegations of any violations.

"The SEC's request is likely to be a routine procedure. But there would be an investigation into Alibaba if it failed to do as the commission asked," Zhao Zhanling, legal counsel with the Beijing-based Internet Society of China, told the Global Times Sunday.

The SEC request came after a public dispute between the company and the SAIC over alleged sales of counterfeit goods on Alibaba's online marketplaces and a series of related class action lawsuits filed in the US.

On January 28, the SAIC published a strongly worded white paper based on talks with Alibaba in July 2014, claiming the company had failed to crack down on sales of fake goods.

Along with the white paper, which gave details of a meeting with senior company executives, the SAIC revealed that its investigation of e-commerce sites including Alibaba's taobao.com and tmall.com found that only 19 out of 51 samples on taobao.com were licensed products.

Alibaba responded on January 29, saying that its talks with the SAIC were part of the normal course of business, and that there had been no need for the talks to be disclosed in the company's prospectus ahead of its record-setting $25 billion US IPO in September 2014.

The SAIC later removed the white paper from its website and said on January 30 that the paper had no legal force. The regulator also announced that SAIC chief Zhang Mao had met with Alibaba founder Jack Ma Yun and agreed on a joint effort to crack down on fake goods.

However, five US law firms, including San Diego-based Robbins Geller Rudman & Dowd LLP, have said that Alibaba did have the responsibility to reveal the July meeting with the SAIC in its IPO prospectus. The firms filed class action lawsuits against Alibaba over possible securities fraud on January 30, according to media reports.

Meanwhile, a statement e-mailed to the Global Times by Alibaba on Friday quoted Ma as saying that the legal disputes could actually offer a good opportunity for the world to get a better understanding of Alibaba, adding that the company would pay significant attention to the lawsuits and settle the issues in a transparent and honest manner.

The lawsuits may end up in compromise, as Alibaba's stock price and brand value could be eroded by a long-term class action procedure, said Zhao.

On Friday, the company's shares closed at $89.05, down 13.5 percent from $102.94 on January 27, with the company's market value having fallen by $34.9 billion since the release of the SAIC white paper.

Alibaba said in the statement that its disclosure of the SEC's request was voluntary. "We value being open with our investors and feel that the disclosure could help avoid false rumors or speculation," it said.

The disclosure of the SEC request shows the firm has learned its lesson from the public fracas with the SAIC and is determined to restore investors' confidence, Zhang Yi, CEO of Guangzhou-based iiMedia Research, told the Global Times Sunday.

But Zhang warned that restoring confidence will not be easy, given the lawsuits in the US, which could also have an impact on Alibaba's global expansion plans.

The company said it has an optimistic attitude toward the result of the lawsuits, but it announced in a Friday statement that it would not be giving employees an annual bonus for the 2015 Lunar New Year holidays, following relatively disappointing business performance.

In the fourth quarter of 2014, Alibaba recorded net income of $964 million, down 28 percent year-on-year, while its revenue stood at $4.22 billion, lower than analysts' estimate of $4.45 billion.