Alibaba.com Ltd., operator of China’s biggest electronic-commerce website, said Chief Executive Officer David Wei resigned after a company probe found more than 2,000 subscribers engaged in fraudulent sales.
Wei and Chief Operating Officer Elvis Lee quit to take responsibility for the "systemic breakdown" in the company’s culture of integrity, though they weren’t involved in activities that led to fraud, Hangzhou, China-based Alibaba said in a statement today. Jonathan Lu, who heads the Taobao.com affiliate, was named Wei’s replacement.
The probe found some suppliers offered bulk orders of consumer electronics at "very attractive prices, a low minimum order quantity and less reliable payment transfer methods," according to the statement. The findings are a blow to Alibaba.com, whose site is used by companies from Wal-Mart Stores Inc. to Procter & Gamble Co. to find Chinese exporters, analysts said.
“This is not good news” for Alibaba.com’s stock, said Muzhi Li, who rates the shares “buy” at Mizuho Securities Co. in Hong Kong. In the long term, the company will likely benefit from Lu’s leadership as the executive is experienced in e-commerce, Li said.
Alibaba.com shares fell 3.5 percent to HK$16.68 in Hong Kong trading today before the announcement. The stock underperformed those of Chinese Internet rivals including Tencent Holdings Ltd. and Baidu Inc. last year.
The frauds, noticed by senior management from late 2009, won’t have a "material financial impact" and the value of the average claim was below $1,200, Alibaba said. The company found 1,219 of its "gold" suppliers in 2009 and 1,107 in 2010 engaged in fraud, according to the statement.