A U.S. appeals court on Tuesday renewed a case alleging that Alibaba Group Holding Ltd., the holding company for the e-commerce behemoth, defrauded shareholders in its initial public offering (IPO).
The case hinges on a claim that the firm didn’t let investors know about a warning it had received from the Chinese government just before its 2014 IPO.
The 2nd U.S. Circuit Court of Appeals in Manhattan had previously ruled in favor of Alibaba to dismiss the claims against it.
Shareholders of Alibaba involved in the suit say the firm did not properly disclose that China’s State Administration for Industry and Commerce (SAIC) threatened to impose large fines on the e-commerce company if it did not crack down on counterfeit products.
“[Alibaba’s] subsequent failure to disclose the meeting concealed the true facts about the threat to the company that had been communicated by the government of China,” the investors wrote in their argument. “This omission rises to at least ‘a reckless disregard of a known or obvious duty to disclose.’ ”
Alibaba, like Amazon, relies on third-party sellers for many of the products it distributes. Many of these sellers in China, where Alibaba is based, sell easily accessible counterfeit products.
Alibaba’s stock price dropped by roughly 12 percent after SAIC released a paper on Jan. 28, 2015, noting its concern over counterfeit products.