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 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.
UPGRADING LOGISTICS
Through Cainiao, Alibaba is trying to take a lead role in developing
China's fragmented package delivery industry, as e-commerce spreads
beyond urban hubs and requires a more robust logistics network.
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In partnership with delivery businesses, Cainiao crunches reams of data on
everything from order trends to delivery routes and weather patterns to increase
efficiency.
Last March, Cainiao completed its first funding round, raising around 10 billion
yuan ($1.53 billion). Investors included Singapore's Temasek Holdings [TEM.UL]
and GIC Pte Ltd [GIC.UL], Malaysia's Khazanah Nasional Bhd [KHAZA.UL], and
China's Primavera Capital.
Noted short-seller Jim Chanos of Kynikos Associates, who has been betting on a
huge decline in Alibaba shares, last year called Alibaba's delivery and
warehousing infrastructure "a risk", according to a report he sent out at a
conference last November which was seen by Reuters.
Alibaba "appears to control Cainiao via 48 percent stake and consolidates the
results via equity method", Kynikos said. "Cainiao's business is capitally
intensive. It is unclear how much of this capital will be spent by Alibaba
versus the delivery partners."
Hedge-fund manager John Hempton of Bronte Capital, who has been shorting shares
in Alibaba, said the company's accounting for acquisitions was, "The next shoe
to drop".
Up to Tuesday's close, Alibaba's stock had fallen 12.3 pct in the last 12
months. On Wednesday it fell 6.8 percent to $75.59.
(Additional reporting by Jane Lanhee Lee and Peter Henderson in SAN FRANCISCO,
Jennifer Ablan in NEW YORK, Narottam Medhora in BENGALURU and Donny Kwok in HONG
KONG; Editing by Anil D'Silva and David Gregorio)
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