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Alibaba Group faces a possible class-action lawsuit initiated by five US law firms. The latest trouble comes after the company witnessed the biggest drop in its stock price since its debut on the New York Stock Exchange in September.
What’s the case?
US firms such as Pomerantz LLP, the Rosen Law Firm, Holzer & Holzer LLC, Howard G Smith and Bronstein, and Gewirtz & Grossman LLC has said that they are investigating investor claims about Alibaba’s business practices.
The suit threat comes after a Chinese government report about fake goods being sold on the company’s online platform.
The investigation has already been launched on behalf of Alibaba investors and it aims at determining whether the company has engaged in inadequate disclosure and made false statements.
But this is not the lone case. Alibaba and the administration quarreled recently over a quality-check report from the watchdog that found that less than 40 per cent of goods tested on Alibaba’s online platform Taobao were authentic.
Taobao claimed it had received unfair treatment, while the administration said in a report, which has since been removed from its website that the quality-check result had been withheld until recently.
In defense, Alibaba said, it will vigorously defend the truth and its reputation.
The SAIC revealed, just before the New York Stock Exchange opened that Zhang Mao, head of the administration, had met with Jack Ma, chairman of Alibaba, in Beijing.
Zhang and Ma agreed to strengthen cooperation to crack down on fakes online and to work together for the healthy development of China’s internet economy, the Daily report said.
Hou Xiaotian, chief analyst at TH Capital LLC, a research and investment advisory firm, said nearly all big public companies are involved in class-action lawsuits from time to time. He attributed the nearly 10 per cent drop in Alibaba’s stock price to the combined impact of the ongoing dispute with the regulator and the lower-than-expected earnings report released recently.
This report showed Alibaba had revenue of $4.22 billion in the quarter ending December 31, but its year-on-year growth rate dropped to 40 per cent from 66 per cent a year earlier.