US court revives lawsuit against Alibaba over IPO

December 07, 2017 09:10
Alibaba said it will defend itself vigorously in a US litigation pertaining to information disclosures during its 2014 IPO, Photo: Bloomberg

A US appeals court has revived a lawsuit that accuses Alibaba Group of cheating shareholders by concealing some information during its 2014 initial public offering.

The case pertains to a claim that the Chinese e-commerce giant didn't disclose a regulatory warning about counterfeiters that the firm had received shortly before going public.

On Tuesday, an appeals court in New York ruled that a lower court judge erred in dismissing claims by holders of Alibaba's American Depositary Shares and ADS call options against Alibaba, Executive Chairman Jack Ma and others, Reuters reports.

Alibaba said it was disappointed by the decision but that the ruling did not determine that Alibaba had violated US securities law.

"We believe our behavior was entirely appropriate, and we intend to defend ourselves vigorously as this litigation progresses," the company said in a statement.

The appeals court said the plaintiffs adequately alleged that Alibaba intended to defraud them but did not rule on the merits of the case.

Alibaba has long faced accusations that its websites are a haven for counterfeiters, including of luxury goods.

Shareholders accused Alibaba of concealing a meeting on July 16, 2014, two months before its US$25 billion initial public offering, in which China's State Administration for Industry and Commerce threatened huge fines if Alibaba fails to suppress counterfeiting.

The price of Alibaba’s ADS fell 12.8 percent on Jan. 28 and 29, 2015 after the SAIC revealed its concerns about products that were banned, fake or substandard, or infringed trademarks.

In June 2016, Chief Judge Colleen McMahon of the US District Court in Manhattan dismissed the nationwide lawsuit, saying Alibaba had flagged the regulatory risks in its IPO materials.

The appeals court called the SAIC threat "highly material" to investors because it "required Alibaba to choose between giving up an important source of its revenue or risking enormous fines,” either of which could hurt results or the IPO's success.

"Given the eventual market reaction to revelation of the information that was concealed at the time of the IPO, its revelation would likely have had a multi-billion dollar negative effect," the appeals court said, according to Reuters.

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