Taobao probe could leave Alibaba open to US action

A mainland regulator's criticism of online shopping site Taobao leaves its parent, Alibaba Group, potentially vulnerable to the US Foreign Corrupt Practices Act (FCPA), punitive action by US regulators and US lawsuits by shareholders, given Alibaba's US listing, analysts say.

Alibaba raised US$25 billion from listing on the New York Stock Exchange in September in the world's biggest initial public offering.

"Under US law, for Alibaba to be at risk of action by US regulators or lawyers on behalf of shareholders, the lawyers and regulators have to show Alibaba failed to disclose in its IPO prospectus a material risk it should have been aware of at the time of its IPO," said Stephen Peepels, Asia-Pacific head of US capital markets at DLA Piper, a US law firm.

"If Alibaba knew this problem at the time of its IPO, it would have an obligation to disclose this in the IPO prospectus."

The State Administration for Industry and Commerce (SAIC) accused Taobao of failing to prevent substandard and questionable products from being sold through its online platform. SAIC raised its concerns over Taobao with Alibaba in July, before Alibaba's IPO, Xinhua reported.

Among the risk factors stated in Alibaba's IPO prospectus, the Chinese e-commerce giant admitted: "We may be subject to allegations and lawsuits claiming that items listed on our marketplaces are pirated, counterfeit or illegal. Failure to deal effectively with any fraud perpetrated and fictitious transactions conducted on our marketplaces would harm our business.