Alibaba.com said that its chief executive David Wei has resigned after an investigation found evidence that more than 2,000 subscribers engaged in fraudulent sales.
Bloomberg said that Wei (pictured) and chief operating officer Elvis Lee quit to take responsibility for the scandal, although they weren’t involved in the activities that led to the fraud. That’s a big shake-up at a company that is poised to become a huge rival of Amazon.com in the global electronic commerce market. It also shows how Asian leaders at big companies often have to take responsibility for failures that happen on their watch.
The investigation found some suppliers offered bulk orders of consumer electronics at very low prices, a low minimum order quantity and less reliable payment transfer methods. Alibaba’s site is used by companies such as Wal-Mart and Procter & Gamble to find Chinese exporters. The investigation found that 100 Alibaba China Gold Supplier staffers knew about the fraud but stayed quiet so that they could make their sales numbers and receive commissions. The company has terminated the store fronts of 2,326 members suspected of fraud.
Alibaba’s shares fell 3.5 percent on the Hong Kong stock market before the announcement. The fraudulent activity was noticed by senior management in late 2009 and is not expected to have a “material financial impact” on the company. Jonathan Lu, head of the Alibaba Group’s Taobao.com e-commerce division, will take over Wei’s job.
Yahoo owns a large stake in Alibaba’s parent company.
AllThingsD has a copy of a company memo circulated by Alibaba chairman Jack Ma in wake of the resignations.
Ma said, “Over this month, I’ve experienced a lot of torment, a lot of frustration, a lot of anger.”
[photo credit: Bloomberg]