China's Alibaba bosses step down after fraud probe

illustration photo - source: AFP

David Wei and Elvis Lee resigned as chief executive officer and chief operating officer respectively, accepting responsibility for "systemic breakdowns" that allowed the fraud to happen, the company said in a statement.

"The investigation confirmed that Mr Wei and Mr 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," the statement said.

However, the board accepted that Wei and Lee had taken responsibility for the systemic breakdowns, the statement to the Hong Kong Stock Exchange said.

"One of our most important values is integrity," founder and non-executive chairman Jack Ma said. "That means integrity of our employees and integrity of our online marketplaces as trusted and safe places for our small business customers."

"We must send a strong message that it is unacceptable to compromise our culture and values. It saddens me to see talented people leave the company," he said, thanking Wei and Lee for their service.

Jonathan Lu, 41, will take over as chief executive of Alibaba.com Limited, which is listed in Hong Kong.

Lu has worked for the company's unlisted parent group since 2000 and will continue his roles as chief executive of Taobao, the group's retail e-commerce site and as a vice president in the group, the company said.

Alibaba shares closed down 3.47 per cent in Hong Kong on Monday at HK$16.68 ($2.14) before the statement was released.

Alibaba.com, a global sourcing website based in the eastern city of Hangzhou, grew into one of China's largest Internet companies by matching mainland manufacturers and wholesalers with buyers around the world.

However, in late 2009 and throughout 2010, senior management noticed an increase in fraud claims from buyers against "China Gold Suppliers", who were certified as highly trusted suppliers by Alibaba.

An internal investigation presented to the board on Monday revealed about 100 salespeople, as well as several supervisors and managers, had helped thousands of fake "Gold Suppliers" evade verification procedures, Alibaba said.

"The investigation concluded that the pursuit of short-term financial gain at all cost had tainted parts of our sales organisation, risking serious damage to our company's core values," the statement said.

Alibaba said it had shut down 2,326 "Gold Suppliers" found to have used the site to defraud buyers, adding they represented only a fraction of the overall total with the "gold" rating -- 1.1 percent in 2009 and 0.8 per cent last year.

Although directors agreed Wei and other top executives took steps to contain the fraud, the board decided they failed to act decisively to prevent erosion of the company's ethical standards, it said in a news article on its website.

In general, the fake suppliers offered popular consumer electronics at very low prices, with small minimum order quantities and less reliable payment methods, the company said, without giving further details of the products.

The average claim by buyers against fraudulent suppliers was less than $1,200, it added.