E-Commerce Fraud Forces Alibaba To Replace Internet Executives In China

The chief executive officer and chief operating officer of Chinese e-commerce behemoth Alibaba.com Limited have resigned after the company admitted that about 100 of its own sales people were involved in allowing fraudulent storefronts on its international online marketplace.

Alibaba said that members of its senior management knew of a noticeable increase of fraud claims by global buyers against China Gold Supplier customers on the international marketplace that began in late 2009 and persisted through much of 2010. Alibaba reportedly began to terminate the China Gold Supplier customers involved and to take other steps to address the problem beginning in the third quarter of 2010.

These fraudulent sellers usually provided high-demand consumer electronics at very attractive prices, a low minimum order quantity and less reliable payment transfer methods. The average value per claim by buyers against fraudulent suppliers was, according to Alibaba, less than USD1,200.

The company’s internal investigation revealed that 1,219 of its company’s China Gold Supplier customers who signed up in 2009 and 1,107 China Gold Suppliers who signed up in 2010 engaged in fraud against Alibaba.com’s buyers. According to the company, these suppliers represent approximately 1.1% and 0.8% of the total number of its company’s Gold Suppliers as of December 31, 2009 and December 31, 2010, respectively.

David Zhe Wei, CEO and executive director of the company, has resigned. Jonathan Zhaoxi Lu, current CEO of Tao Bao Holding Limited that runs the Taobao.com website, will replace Wei. Elvis Shi-Huei Lee, chief operating officer at Alibaba.com Limited, has also resigned, but the company has not yet named a successor.