Alibaba Group Holding (BABA) Accounting Practices Under Investigation


Alibaba Group Holding Ltd (NYSE:BABA) disclosed that it is under investigation by the United Stated Securities and Exchange Commission (SEC).

The stock price of the Chinese e-commerce giant declined more than 5% to $76.83 per share at the time of this writing around 1:26 in the afternoon in New York on Wednesday.

In a regulatory filing, Alibaba said the SEC is investigating whether its accounting practices violated any federal laws. The Chinese e-commerce giant said the U.S. regulator initiated the inquiry earlier this year.

According to Alibaba, the SEC requested its voluntary submission of documents and information related to its consolidation policies and practices including its accounting for Cainiao Network as an equity method investee. The regulator also asked the company to submit its policies and practices applicable to related party transactions in general and its reporting of operating data from Single Day.

Single Day is the world’s biggest shopping festival as it represents far more than the combined sales during the Black Friday and Cyber Monday events in the United States.

Alibaba is cooperating with the investigation

Alibaba said, “We are voluntarily disclosing this SEC request for information and cooperating with the SEC.”  The company through its legal counsel submitted the requested documents and information to the regulator.

The SEC told the Chinese e-commerce giant that its request for information should not be perceived as an indication that it violated federal securities laws.

“This matter is ongoing, and, as with any regulatory proceeding, we cannot predict when it will be concluded,” said Alibaba.

The company also warned that the existence of any claims, litigation, investigations and proceedings may harm its reputation and have a negative impact on the trading of its American Depositary Shares (ADS).

“The outcome of any claims, investigations and proceedings is inherently uncertain, and in any event defending against these claims could be both costly and time-consuming, and could significantly divert the efforts and resources of our management and other personnel. An adverse determination in any litigation, investigation or proceeding could cause us to pay damages as well as legal and other costs, limit our ability to conduct business or require us to change the manner in which we operate,” explained Alibaba.