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To get around Chinese government restrictions on foreign investment in Internet companies, Alibaba deploys an unusual structure that gives foreign investors a stake in profits but keeps management control in China. That arrangement magnifies risks for investors. Chinese executives can confiscate corporate assets without compensating shareholders, and investors might have no grounds to sue.
Alibaba's e commerce platforms cater to both Chinese and global consumers. At its heart is Taobao, a Chinese consumer to consumer website similar to eBay. Tmall offers merchants official storefronts to consumers in China.
The company said it is co operating with the investigation. SEC spokesman Kevin Callahan declined to comment Wednesday.
S Global Market Intelligence quickly downgraded its rating on Alibaba's stock to "Buy" from "Strong Buy."
A question is whether Alibaba or its suppliers may have falsified orders to pad sales volumes, suggests Jay Ritter, a finance professor at the University of Florida. Cancelled orders may not have been recorded until Alibaba's next quarter, to inflate the immediate sales figures, for example.
"It's mainly a question about the magnitude of this," he said. "There's a whole spectrum of possibilities."
"We have related concerns about what could arise and be determined by the SEC," equity analyst Scott Kessler wrote in a research note. However, he added, S believes the company's stock price already reflects those concerns.
Alibaba's accounting under investigation
The SEC probe raises the possibility that the stellar results the company has reported may have been too good to be true, experts say.
Alibaba is the world's biggest e commerce platform, with more than 420 million people buying $485 billion worth of goods last year on its sites. Its digital platforms, including Taobao and Tmall, make up 80 per cent of Chinese e commerce.
Led by self made billionaire and founder Jack Ma, Alibaba has put a huge footprint Women Canada Goose Dawson Parka Navy Nz Sale on the Chinese economy and made unorthodox moves, such as spinning off its payment service into a company Ma controlled without telling Yahoo, a major investor in Alibaba.
That could ultimately mislead investors about the level of Alibaba's sales and how fast they're growing, Ritter said.
Alibaba disclosed in a regulatory filing that the Securities and Exchange Commission has requested documents and information related to the way it adds together earnings from its various divisions, and how it reports transactions with other companies it has a stake in, among other things.
in September 2014, and its profits have bucked Wall Street expectations amid the Chinese economy's slowdown. regulators are investigating its accounting practices.
"I think it's a moment of truth for the company," said Anant Sundaram, a finance professor at Tuck School of Business at Dartmouth College. They are down 20 per cent in the past year.
Alibaba Group Holding Ltd. in September 2014. Investors, seeking to tap into the rapidly growing Chinese middle class, scrambled to buy shares. The offering raised $25 billion, making it the largest in the history of the New York Stock Exchange.
Disclosure of the SEC probe comes less than two weeks after the company's membership in the International Anti Counterfeiting Coalition was suspended. officials and testifies before Congress, view Alibaba as a huge marketplace for fakes. Michael Kors, Gucci America and Tiffany quit the group in protest after Alibaba was made a member in April.