Alibaba Dealings With Chinese Regulator Draw SEC Interest

Chinese e-commerce company Alibaba Group Holding Ltd. said it received a letter from the Securities and Exchange Commission requesting more information about its interactions with a Chinese regulator about alleged sales of fake goods.


“Alibaba Group has received correspondence from the [SEC] asking for background facts and other information related to our interaction with one of our Chinese regulators,” the company said in an emailed statement. “We are cooperating with the SEC’s request.”

The SEC declined to comment.

The letter comes after China’s State Administration for Industry and Commerce published an online “white paper” in January describing talks between the company and the agency in July, ahead of Alibaba’s record-setting $25 billion initial public offering in September on the New York Stock Exchange.


Alibaba has said that the talks with the Chinese regulator came in the normal course of business and didn’t require disclosure in its IPO prospectus. It said it only learned of the allegations about counterfeits when they were published online.


The regulator later pulled the white paper, which it said had no legal force, from its website. Alibaba said it felt vindicated by the move.


The SEC didn’t accuse Alibaba of wrongdoing, and the letter didn’t contain allegations of violations of securities law, the company said. Alibaba said it was voluntarily disclosing the letter to “help avoid false rumors or speculation.”


“We have chosen to proactively disclose the request because we value being open with our investors and feel that disclosure could help avoid false rumors or speculation,” the company said. It said the dialogue with the SEC was continuing.


Under U.S. securities rules, companies are expected to disclose in IPO prospectuses 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 allegations of sales of counterfeit goods or other illegal activities taking places in its online marketplaces, where some $300 billion of transactions took place in the fiscal year ended last June. It detailed steps it had taken to address those concerns.


Alibaba’s Taobao marketplace was from 2008 to 2011 included on the U.S. government’s list of “notorious markets” known for common counterfeit goods. But the U.S. removed it from the list in late 2012, citing efforts Alibaba had made to curb fakes.


Joe Tsai, Alibaba’s executive vice chairman, said in January that the company has cooperated with Chinese law-enforcement agencies on more than 1,000 counterfeiting cases and over the past two years has invested more than $160 million in efforts to fight counterfeits and enhance consumer protection.


Alibaba Executive Chairman Jack Ma met with the Chinese regulator’s top official, Zhang Mao, and the two agreed to work together to address the risks of counterfeits, the company has said.


Alibaba’s shares have fallen since late January after the regulator’s white paper was published and an earnings report that showed profit fell 28% in the quarter ended Dec. 31 from a year earlier. The stock is down more than 13% since Jan. 27, though it is up 31% from its IPO price. On Friday, Alibaba’s shares rose $1.95, or 2.2%, to $89.05.


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