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Fraud at Alibaba, company claims no impact in India

by Satrajit Sen

by Satrajit Sen

Following the Alibaba.com controversy over fraudulent listings on the website, AlooTechie investigated to understand the extent of the problem. When AlooTechie contacted Brian A. Wong, head, Global Sales at Alibaba.com and Sandeep Deshpande, country general manager, Alibaba.com, India, they both declined to comment on the issue. Though, Alibaba’s corporate communication department said that there was no Indian supplier involved in this case and this was an isolated case of fraud within the China Sales team, all of the issues were with China based suppliers.

It was investigated by Alibaba.com officials that around 2,326 fraudulent customers had been listed Alibaba.com with the support of more than 100 sales department executives. CEO David Wei and COO Elvis Lee have stepped down after the fraud came to light.
Explaining the nature of the fraud, an Alibaba.com spokesperson told AlooTechie, “The nature of the fraud was that a group of 100 sales people were found to be helping fraudulent suppliers bypass the verification service. Management knew of a small number of fraud issues and dealt with it in Q3.”

According to the company, Alibaba did its own investigation and uncovered the fraud and now is supporting law enforcement in relevant cases with claimants. The internal investigation by independent board member Savio Kwan revealed that Alibaba.com noticed an increase in fraud claims beginning in late 2009 against sellers designated as “gold suppliers,” which means they had been vetted by an independent party as legitimate merchants.

According to the company, the CEO and the COO stepped down for not properly instilling the values and integrity in the team. However, according to our sources, along with the CEO and the COO, the company has also removed the HR Head and around 100 sales staff.

Company officials further said that directors have asked Lu to serve as Alibaba.com CEO. Lu is a former Alibaba.com sales manager for Guangdong Province and was general manager of Alibaba.com’s South China Region for nearly five years. Lu also served as the founding president of Alipay, Alibaba Group’s electronic-payments subsidiary, from 2004 through the end of 2007.

The company said there are no plans to search for a permanent CEO. “The Board will evaluate if this is an appropriate arrangement on an ongoing basis,” said one executive. The company also said that all fees paid to Alibaba.com to set up fraudulent storefronts will be forfeited and paid into a special fund that was established by the company in early 2010 to help provide good-will payments to fraud victims. Officials said the company will continue to help victims pursue legal action against fraudulent operators.

According to our sources, similar frauds have been reported in Indian listings too with a few manufacturing suppliers. One particular instance involved a leading agarbatti manufacturer which was duped of a large amount by fraudulent suppliers substituting ordered material. Alibaba claimed that the number of fraudulent listings prevailing in India, if any, might be negligible and regular checks are usually done to counter such situations.

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