Most of the fallout in China may have settled from Alibaba’s fight with a Chinese regulator over fake merchandise sold through the e-commerce giant’s online marketplaces. But now Alibaba faces potential problems from another direction: the U.S. Securities and Exchange Commission, The New York Times reported.
Alibaba said on Friday (Feb. 13) that it received correspondence from the SEC, asking for more background and information about the fight with China’s State Administration for Industry and Commerce (SAIC). That highly public battle played out after the SAIC published a report in mid-January that was highly critical of Alibaba’s Taobao marketplace, which the report said offered much higher rates of fake and substandard merchandise than other online marketplaces.
Alibaba wasn’t accused of selling counterfeit goods itself; its marketplaces are designed for third-party merchants to sell to customers. But the SAIC report described the issue as Alibaba’s “biggest credibility crisis since it was founded.”
The war of words escalated and then settled down over a period of about two weeks. But along the way, SAIC issued a statement saying that it discussed the report’s findings with Alibaba executives (which it didn’t name) in July, but did not make the report public at the time so as “not to affect Alibaba’s preparations for a stock market listing” in September.
That may have been what triggered the SEC’s request for more information to Alibaba, whose record-breaking September IPO raised $25 billion. Alibaba didn’t detail what was in the SEC’s request.
But Alibaba did say that the SEC’s request was not a formal inquiry and that it would cooperate. The company also underscored that it didn’t have a legal obligation to publicly reveal the SEC request.
“The SEC letter states it should in no way be construed as Alibaba Group having done anything wrong or there having been any violation of securities law,” an Alibaba spokesman said. “We are committed to maintaining an open, transparent and cooperative relationship with all regulatory agencies and look forward to a constructive dialogue.”
In the case of the Chinese regulators going after e-commerce sites like Alibaba and JD.com, it stems from claims that the company was committing illegal business practices in regards to fake merchandise and manipulative pricing, according to Reuters and The New York Times.
The National Development and Reform Commission (NDRC) is the agency leading the investigation, two weeks after another regulatory body, the State Administration for Industry and Commerce (SAIC), published a white paper on potentially illicit activity by Alibaba on its e-commerce platforms, which was quickly retracted. The accusations revolve around the flood of fake merchandise sold on these sites, such as luxury goods, wine, and electronics, as well as inflating prices on certain goods so that they can be marked down as “special offers,” especially on holidays like Singles Day (Nov. 11), the world’s largest shopping day. Alibaba saw $9 billion in transactions that day, according to company sources.
While the SAIC was the initial accuser, the NDRC has been the more noticeable cop on the beat due to its aggressive stance in anti-trust litigation within China. It has already slapped Qualcomm with a $975 million fine (the largest fine in Chinese corporate history) on Feb. 9, amid an investigation into anti-competitive practices. The statement in regards to domestic e-commerce, theorizes Reuters, may mean that the NDRC is looking to expand its authority.
Taobao, one of the big Alibaba sites, responded to the accusations by detailing its commitment to preventing fakes from reaching its marketplace, according to The New York Times. Alibaba says it has spent over $160 million rooting out fakes and knockoffs in 2013 and 2014, but it is difficult given the sheer size of the e-commerce marketplace. In an unusual turn of the tables, Taobao on its social media account went after the agency for not conducting an objective investigation, slamming Bureau Chief Liu Hongliang of using “mistaken methods to arrive at a conclusion that was not objective, causing very serious negative effects on Taobao and on China’s e-commerce industry participants,” according to a company statement.