SEC probes Alibaba accounting methods, shares dive

Thu May 26, 2016 10:00am EDT
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(Reuters) - U.S. regulators are investigating Alibaba Group Holding Ltd's (BABA.N: Quote) accounting practices to determine whether they violated federal laws, the Chinese e-commerce giant said, sending its shares tumbling nearly 7 percent on Wednesday.

Alibaba said the Securities and Exchange Commission launched the investigation earlier this year. Questions about its growth rate and its relations with affiliated companies have dogged the firm for years.

The latest investigation highlights how far Alibaba has to go to improve transparency, as it also fights sales of fake items, while a continuing acquisition spree creates uncertainty over its earnings.

It was not immediately clear what prompted the SEC investigation. Alibaba said that it was cooperating with the authorities, and that the SEC advised it the investigation should not be seen as an indication the company had violated federal securities laws.

The SEC focused on the accounting for logistics firm Cainiao Network, which is around 47 percent-owned by Alibaba, accounting practices applicable to related-party transactions in general, and operating data from its annual "Singles' Day" sale, according to Alibaba's annual report filed on Tuesday.

Some merchants in China have questioned whether results from the Nov. 11 Singles' Day promotion, which have exceeded the combined sales of the Black Friday and Cyber Monday shopping events in the United States, are as high as reported by Alibaba. Last year it reported about $14 billion in transactions on Singles' Day, when shoppers are encouraged to treat themselves to special deals.

Cainiao, started jointly in 2013 by Alibaba, Yintai Holdings, Fosun Group, Forchn Holdings and five major delivery companies, has in the past been unconsolidated in Alibaba's financial statements, raising questions among some investors and analysts.

Alibaba said its latest annual report disclosed for the first time Cainiao's revenue, net loss, assets and liabilities. Alibaba spokesman Robert Christie said those figures are "exactly the kind of robust and transparent information that will address the underlying issues in SEC's inquiry".

There are no other undisclosed SEC inquiries, Christie said.   Continued...

An employee is seen behind a glass wall with the logo of Alibaba at the company's headquarters on the outskirts of Hangzhou, Zhejiang province, April 23, 2014.  REUTERS/Chance Chan/File Photo