February 21, 2011 / 10:53 AM / 7 years ago

Alibaba.com CEO resigns after jump in fraudulent sales

<p>David Wei, CEO of Alibaba.com, poses for a photograph in San Francisco, California August 24, 2010. REUTERS/Robert Galbraith</p>

HONG KONG (Reuters) - Alibaba.com has replaced its chief executive and chief operating officer after a noticeable increase in fraudulent transactions at the Chinese e-commerce firm’s website.

CEO David Wei Zhe and Chief Operating Officer Lee Shi-huei Elvis have resigned, Alibaba.com said in a statement on Monday.

The company said that Lee and Wei were not personally involved in any of the claims and that they had made good faith efforts to address the problem, but were resigning to take responsibility for a “systemic breakdown.”

Both Wei and Lee were unavailable for comment.

Jonathan Lu Zhaoxi, currently chief executive of the unlisted online retailer Taobao, will become the new CEO.

Alibaba.com operates a business model similar to eBay, providing a platform for online clients to sell to each other, though Alibaba.com’s focus is in business-to-business transactions.

Alibaba.com, a unit of Alibaba Group, which is 40 percent owned by Yahoo, said in the statement there were 1,219 fraud cases in 2009 and 1,107 in 2010, with the average value per less than $1,200.

Alibaba.com spokeswoman Linda Kozlowski declined to comment on the total amount involved, but said that the company had paid out $1.7 million from its Fair Play fund to 2,249 customers.

Alibaba.com competes with Global Sources in China’s 1.5 billion yuan ($220 million) business-to-business (B2B) marketplace.

The announcement of the management changes came after the Hong Kong stock market closed.

Alibaba’s shares, which have risen 20 percent this year, ended 3.47 percent lower, lagging the main Hang Seng index’s 0.47 percent fall.

“There should be a smooth transition here,” said CLSA analyst Elinor Leung. “David Wei himself became CEO only when the company was listed, so I don’t think there will be any major dramas because of the change.”

Alibaba is run by the charismatic former English teacher Jack Ma, famous for stopping the sale of shark fin products in 2009 because of his stated distaste for the controversial food.

He said an internal investigation had picked up a spike in the number of fraudulent transactions conducted on its site by so-called China Gold Suppliers, a network of high-volume members.

“Members of our company’s senior management knew of a noticeable increase of fraud claims by global players against China Gold Supplier customers on the international marketplace that began in late 2009,” Ma said in the statement.

Additional reporting by Charlie Zhu and Huang Yuntao; Editing by Lee Chyen Yee and Jane Merriman

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