Suit Claims Alibaba Failed To Disclose Counterfeit Goods Before IPO

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Suit Claims Alibaba Failed To Disclose Counterfeit Goods Before IPO

Alibaba, an e-commerce giant out of China, is looking at an increasing number of class action suits alleging that the company downplayed the sale of counterfeit goods during its $25 billion initial public offering. On September 2014, Alibaba conducted its IPO and started trading stock on the New York Stock Exchange under the symbol ‘BABA.’

Investor Clair Rand filed a lawsuit in United States District Court for the Southern District of New York alleging that Alibaba’s share price artificially inflated because of misleading statements made by company executives to the investing public before and after its listing on the NYSE in SEC filings, press releases, and conference calls pertaining to the company’s efforts in fighting the sale of illegal and counterfeit goods.

According to the suit, the executives failed to publicly disclose that in July 2014, two months before the IPO, they met with China’s State Administration of Industry and Commerce (SAIC) and received a guidance regarding “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.”

A white paper issued by the SAIC detailed a number of questionable business practices on Alibaba’s behalf calling the controversy “a rare public dispute with one of the country’s most prominent companies.” More specifically, the white paper alleged that Alibaba, “turned a blind eye to the sale of fake cigarettes, alcohol and mobile phones” and that company staffers took bribes from merchants and others seeking to boost their search rankings and gain advertising space.

According to the complaint, because of the combination of the SAIC white paper and lower than expected results for the quarter ending on December 31, 2014, Alibaba shares fell almost 9% to close at $89.81 per share on January 29, 2015. Coupled with a decline of approximately 4% of January 28, Alibaba shares were reduced more than 25% from its class period high of $120 per share reached on November 13, resulting in a loss of more than $11 billion in market capitalization.

Alibaba is headquartered in Hangzhou, China and operates as an online shopping destination through Alibaba.com, Taobao Marketplace, and Tmall.com.

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