Alibaba announced earlier today that it will be paying out $250 million USD in order to settle a lawsuit which accused the e-commerce giant with concealing a regulatory warning regarding its capacity to prevent counterfeiting before its IPO back in 2014. The lawsuit, which was filed in the U.S. District of New York, charged Alibaba with securities fraud for not disclosing that it had held a meeting with the Chinese State Administration for Industry and Commerce in July of 2014, just two months prior to its $25 billion IPO.
Alibaba’s American Depositary Shares dropped 12.8% during the final week of January 2015, after the SAIC released a white paper centered around concerns that brought up at the meeting, stating that numerous products marketed on Alibaba websites were knockoffs or infringed on official trademarks. Furthermore, the white paper also stated that the SAIC had postponed the release of its findings so as not to impact the initial public offering.
The proposed class-action settlement deal covers Alibaba ADS and ADS options investors for the time-frame including the four plus months prior to the discharge of the white paper, which would go on to be withdrawn. The agreement, which still requires the approval of the court, also settles claims against Alibaba representatives including its founder Jack Ma. Alibaba has denied any wrongdoing and stated that the settlement draws to a close any and all pending securities lawsuits against Alibaba, its chief officers and its company directors.
According to court papers, the plaintiffs’ lawyers referred to the settlement as “fair, reasonable, and adequate,” pointing to the potential challenges of proving that Alibaba had made false statements and had the intention of committing fraud. Lawyers could ask for as much as 25% of the total settlement fund as compensation for legal fees, as outlined on court papers. They did not respond to requests for additional comments on this matter.
Alibaba has long dealt with allegations that its online websites are a safe haven for counterfeiters and has also been involved in lawsuits filed by high-end brand names like Gucci, Yves Saint Laurent and more.
Alibaba, Amazon, eBay and other similar companies have in place strict policies which ban counterfeiting, and outline their investments to combat the common practice. On April 3rd, U.S. President Donald Trump requested a crackdown on internet counterfeiting, stating that worldwide dealings in fake and unlicensed goods could climb as high as $500 billion yearly.