14 DAY TRIAL // Alibaba.com chief executive officer David Wei and chief operating officer Elvis Lee resigned from the company following a year-long fraud involving 2,300 verified vendors.
Alibaba.com is the largest business-to-business trading platform in the world and has, according to its own account, over 50 million users as of September 2010.
The company concluded an internal investigation into fraudulent activity linked to Chinese Gold Suppliers who signed up in 2009 and 2010, and determined that the management didn't take timely action.
"Members of our Company’s senior management knew of a noticeable increase of fraud claims by global buyers against China Gold Supplier customers on the international marketplace that began in late 2009 and persisted through much of 2010. "Although management of our Company began to terminate the China Gold Supplier customers involved and to take other steps to address the problem beginning in the third quarter of 2010, [...] our Board considered that the systemic nature of the problem required a recommitment to our Company’s core values," the company wrote in a report [pdf] for the Hong Kong Stock Exchange.
The investigation determined that over 2,300 Gold Suppliers from the around 140,000 registered on the platform intentionally deceived buyers. To attract victims, they displayed very low prices, low minimum order quantities and less reliable payment options.
Around 100 of the company's sales staff, including some supervisors and sales managers, were found responsible for allowing the fraudsters to pass the strict Gold Supplier verification process.
Mr. David Wei and Mr. Elvis Lee were not involved in the fraud schemes in any way, but the board felt it was appropriate of them to take responsibility for the situation.
Most of the buyers who were defrauded were reimbursed by Alibaba.com. The average value of the claims made was under $1,200 and the total amount paid back by the company was $1.7 million.
Jonathan Lu, the chief executive of TaoBao.com, a sister website owned by the Alibaba Group, will take over Wei's role as CEO of Alibaba.com