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Alibaba.com CEO, COO Resign Over Fraud Investigation

Hong Kong Exchanges and Clearing, 2/21/11

Chinese B2B e-commerce company Alibaba.com (1688.HK) has announced that David Wei has resigned as CEO and executive director, and been replaced by Jonathan Lu, CEO and president of Chinese B2C & C2C e-commerce website Taobao. Elvis Lee has also resigned from Alibaba.com as COO and executive director.

The move follows the reporting of the preliminary results of an internal investigation led by independent non-executive director Savio Kwan to the board of directors, which found that members of senior management knew of a noticeable increase of fraud claims by global buyers against China Gold Supplier users that began in late 2009 and persisted through much of 2010.

Alibaba.com determined that 1,219 of users with China Gold Supplier status who signed up in 2009 and 1,107 users with China Gold Supplier status who signed up in 2010 engaged in fraud against buyers. These suppliers represent approximately 1.1% and 0.8% of the total number of Alibaba.com's Gold Suppliers as of December 31, 2009 and December 31, 2010, respectively. Alibaba.com has terminated all of the storefronts of these suppliers, and will take action against any other suppliers who exhibit a high risk of fraud based on Alibaba.com's fraud detection model.

In general, the fraudulent sites offered high-demand consumer electronics at very attractive prices, a low minimum order quantity and less reliable payment transfer methods. The average value per claim by buyers against fraudulent suppliers was less than USD 1,200.

Alibaba.com's investigation has determined that about 100 sales people, out of a field sales force of about 5,000, as well as a number of supervisors and sales managers, are directly responsible in either intentionally or negligently allowing the fraudsters to evade authentication and verification measures and systematically establish fraudulent storefronts on the international marketplace.

The investigation confirmed that Wei, Lee and other members of senior management were not involved in any of the activities that led to the claims by buyers against fraudulent suppliers and that management made good faith efforts to address the problem. However, the Board has accepted Wei and Lee's resignations.

Keywords: Elvis Lee Savio Kwan HR David Wei Jonathan Lu B2B e-commerce Internet Alibaba.com 1688.HK scam scandal

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