Alibaba shares are at an all-time low — and people are asking questions about fake customers
(REUTERS/Ruben Sprich) Jack Ma, founder and executive chairman of Alibaba Group. Alibaba shares are at an all-time low.
On Tuesday, shares of the Chinese e-commerce giant were down more than 2.5% to trade below $82 for the first time since the company went public in September.
Since hitting their all-time highs in early November, shares of the company are down more than 30%.
And a report in The Wall Street Journal published on Monday certainly isn't helping the stock.
The Journal reported that the company was being plagued by "brushers," or users who are paid by vendors to buy products at cost and then write positive reviews in an effort to move a vendor's listings higher up in search results.
The practice of "brushing" is illegal in the US and China.
Here's The Journal:
Faking orders, or "brushing," as it is called in China, involves paying people to pretend to be customers. It lets vendors pad their sales figures and, in theory, boost their standing on online marketplaces, which often give more prominence to high-volume sellers with good track records.
Typically, vendors pay brushers the cost of the products they are ordering, plus a fee. The brushers place the orders and make payments using that money. The vendors then ship boxes that are empty or full of worthless trinkets, while the brushers write glowing reviews.
The practice is considered a form of false advertising, which is prohibited in the U.S. and China. Chinese sellers found doing so face fines and restrictions on their business. But Mr. Cui, who asked to be identified only by his last name, said he relied on fake orders because he felt there was no other way for his products to be seen.
Back in late January, The Journal reported that the Chinese government had accused Alibaba of failing to crack down on "brushing" on its biggest platform, Taobao.
And on February 13, Alibaba disclosed that it was in contact with the SEC regarding its discussions with Chinese regulators.
In that disclosure, Alibaba said it had "no obligation to disclose the receipt of the SEC correspondence, we have chosen to proactively disclose the request because we value being open with our investors and feel that disclosure could help avoid false rumors or speculation."
The company added: "The SEC letter states it should in no way be construed as Alibaba Group having done anything wrong or there having been any violation of securities law."
Prior to the Journal report, Alibaba reported earnings in January that were weaker than expected, which slammed the stock.
Here's a look at its slow decline:
(Yahoo Finance)
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