Alibaba Hit by Fraud Scandal

The resignation of a Chinese company's top executive may restore public confidence in the firm.

china-alibaba-305.jpg Jack Ma, chairman, gives a thumbs up after the company's initial stock public offering in Hong Kong, Nov. 6, 2007.

China's biggest e-commerce company, Alibaba, scrambled to salvage its reputation on Tuesday following the resignation of its chief executive amid a surge in fraudulent transactions.

The company's share price lost nearly nine percent of its value on the Hong Kong Stock Exchange after the electronic commerce giant announced it would replace CEO David Wei and and COO Elvis Lee.

The Alibaba bosses had accepted responsibility after thousands of suppliers were terminated for using the site to cheat buyers.

"Alibaba will definitely not become a money machine, and any behavior that runs against the company's values will not be tolerated," the company said in a statement to the media.

The company has received complaints about fraudulent trading since 2009.

A recent investigation revealed that 1,219 suppliers in 2009 and 1,107 suppliers in 2010 had acted fraudulently.

Their accounts have been closed pending investigation by law enforcement agencies. The company has also punished around 100 sales representatives linked to the suppliers, the statement said.

The 2,326 suppliers offered popular consumer electronics at very low prices with small minimum order thresholds, using less secure forms of payment.

Lack of trust?

Beijing-based business expert Wen Yuankai said Wei wouldn't necessarily have had first-hand knowledge of the fraudulent suppliers.

"Wei is a top entrepreneur, but as the chief executive officer of such a large company, he might not get involved in such small details," Wen said.

"But he knows very well that in any country, somebody has to take responsibility for disasters."

Wen said the resignation would boost Alibaba's credibility in the eyes of the world.

"China is a society where public confidence typically runs very low," he said. "Therefore, it's important that problems of this kind get taken very seriously."

Xie Tian, a markets expert at the University of South Carolina, said trust is a lifeline for an online business like Alibaba.

"The high number of transactions and good turnover were all built on the basis of integrity," Xie said. "With no integrity, there is a lack of trust."

"Most companies wouldn't be able to do business without a certain basic level of trust," he added.

Reported by Wen Jian for RFA's Mandarin service. Translated and written in English by Luisetta Mudie.


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