Alibaba Group has been handed a victory in lawsuit brought on behalf of holders of Alibaba ADS and ADS stock options, accusing it of defrauding shareholders by concealing a regulator's warning about its ability to suppress counterfeiting on its websites. Chief Judge Colleen McMahon of the U.S. District Court for the Southern District of New York ruled this week that Alibaba - China's largest e-commerce company - did not fraudulently omit its July 16, 2014 meeting with China's State Administration for Industry and Commerce from investor materials for its $25 billion initial public offering two months later.
According to Reuters, "Alibaba's American Depositary Shares fell 12.8 percent on Jan. 28 and 29, 2015 after the SAIC issued a white paper outlining concerns it raised in the meeting. These included that many products sold on Alibaba's websites infringed on trademarks, or were banned, substandard or fake. The white paper was later withdrawn, but seven proposed U.S. class action lawsuits were filed over the share price drop. They were combined into a single nationwide case before McMahon. Alibaba has long faced accusations that its online platforms are a haven for counterfeiters, including in lawsuits by luxury brands such as Gucci and Yves Saint Laurent."
In a lengthy decision, Judge McMahon stated that Alibaba's initial public offerings materials did, in fact, include disclosures of regulatory risks that Alibaba faced for failing to police its websites. Such disclosures, per McMahon, also indicated that China's legal and regulatory environment made investing in a Chinese company, such as Alibaba, risky. "It is clear that Alibaba did not downplay its problem with counterfeit sales on its platforms or the likelihood of an administrative action against it," McMahon wrote.
"McMahon also said the plaintiffs did not show that Alibaba Chairman Jack Ma intended to conceal the SAIC meeting to inflate his proceeds from the IPO. Ma is worth $23.2 billion, Forbes magazine said on Wednesday," per Reuters' report on the case.
* The case is In re: Alibaba Group Holdings Limited Securities Litigation, No. 15-md-02631 (SDNY).