Alibaba $15 Billion IPO Getting Fast Tracked Despite Firm’s Track Record

Danger’s Lurk In Dark Web Corners

Los Angeles, CA, April 1, 2014 – Alibaba, the Chinese e-commerce company recently abandoned the Hong Kong exchange for a U.S. initial public offering only after subsidary TaoBao.com was taken off the United States Governments 2013 “Notorious Markets List” for being a top website for counterfeiters to sell goods.  Now it’s heading for what may be the nation’s biggest initial public offering since 2008 and few people are asking any questions.

With Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley and other banks working on the very lucrative IPO, investors and consumers  need to stop and ask questions about Alibaba. Some of Alibaba’s nine² subsidiaries are significant global proliferators of counterfeit products. TaoBao.com was not included in the 2013 list, yet was included in previous Notorious Markets Lists¹ for the widespread availability of counterfeit and pirated goods in its electronic marketplace says the US Government. With $240 billion of merchandise traded on its sites last year, Alibaba is the world’s largest e-commerce company. It conducts more business than Amazon (AMZN) and eBay (EBAY) combined, and accounts for over half of all parcels shipped in China.

While relatively unknown in the US, the $15 billion Alibaba IPO will solicit un-informed US and international investors to invest in an e-commerce presence with a dubious history of facilitating counterfeit product distribution. The counterfeit product industry is expected to produce $1.7 trillion (or 2% of the world’s economic output) by 2015 says the International Chamber of Commerce, the majority from China, and largely aided by direct internet distribution channels. TaoBao claims over a billion products listed, and 87 million listings (8%) of potentially counterfeit listings removed.³  “Still, no sleuthing is required to find counterfeit product listings on Alibaba, AliExpress and TaoBao’s websites despite claims of increased diligence. Well-known US brands still have hundreds to thousands of counterfeit copies of their trademarked goods offered online,” says Craig Crosby, publisher of the popular consumer protection website The Counterfeit Report®.   

A 2007 MIT study⁵ identified between 15 and 20 percent of all products made in China as counterfeit -- and someone has to distribute them. US manufacturers are not reserved in their comments on the e-commerce giant:

• Beachbody, the publisher of popular the Insanity workout DVD’s makes it clear:
  “ 99.9% of the Beachbody products being offered on iOffer, Alibaba, Aliexpress, Taobao, Tradetang, “Used” on Amazon, eBay, Craigslist are counterfeit.” ⁶
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• Sporting manufacturer Browning adds: “As nearly as we can tell, every Browning knife on this website is counterfeit. Do your due diligence and make sure before you buy. Beware!” -- Browning website.⁷

Levi’s cut of 20% of its US workforce may be illustrative of the 750,000 US Jobs and $250 billion a year lost in the US to counterfeit products, according to the Senate Subcommittee on Commerce.⁴  Yet, the danger of counterfeiting goes beyond mere financial harm and theft; organized crime and terrorist groups use the sale of counterfeit goods to raise money for illegal activities and violence. The risk associated with the IPO Alibaba isn’t clear, but Alibaba’s dark history and shady trade practices identify certain risks that unsuspecting or ignorant American investors may not even notice; 

• Alibaba has been removing millions of counterfeit goods listings in advance of its IPO. It may be difficult to immediately determine the effect of losing these listings on the bottom line and company’s growth. With approximately $1.26 billion (only 2%) worth of counterfeit goods originating overseas seized by U.S. Customs and Border Protection in 2012 – direct e-commerce distribution is the obvious delivery channel and detrimental to the US economy.
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• Alibaba controls nearly 80 percent of China's Internet shopping market and blocks China's search engine from searching inside two of its most popular web stores, Taobao and Tmall.  Users are forced directly to the sites for shopping.
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• The concentration of ownership is particularly troubling in the case of Alibaba, because American investors may find themselves with little recourse if the Chinese company acts against their interests. This is precisely what happened in 2011, when CEO Jack Ma sold himself Alipay for a nominal sum. Significant stakeholders Yahoo and Softbank Corp. were furious. In the end they had enough leverage to demand fair compensation, but retail investors might not be so lucky⁸. U.S. markets are beating out Asian markets for IPOs since companies are permitted to have a dual-class voting structure, which allows the founders to sell shares in a company, but still maintain voting control. "This flexibility seems to be behind the decision of Alibaba to go public in the U.S. versus Hong Kong," says Josef Schuster of IPOX Schuster.

Two companies stand to benefit directly from the Alibaba IPO;
The Japanese telecom and internet giant SoftBank (JP:9984), which owns 37% of Alibaba. Softbank is enjoying a pre-IPO rally that’s boosted shares up as much as 6%. Yahoo (YHOO) still owns 24% of Alibaba after selling half its stake in 2012. The IPO is also expected to be a boon for Yahoo;  Yahoo's entire market value is tied to Alibaba, with a market cap at $39.5 billion.

Additionally, the $15 billion Alibaba IPO would value Alibaba at around $100 billion and yield hundreds of millions of dollars in fees for banks and law firms. Alibaba’s IPO will no doubt be a big deal, but buyer beware – “old habits are hard to break.”

• Footnotes:
• ¹ The  Office of the United States Trade Representative (“USTR”) Notorious Markets List (“List”) identifies select online and physical marketplaces that reportedly engage in and facilitate substantial piracy and counterfeiting. The Notorious Markets List identifies particular online and physical marketplaces in which pirated or counterfeit goods are reportedly available, but is not intended to be an exhaustive listing of all notorious markets around the world. Rather, the List highlights some of the most prominent examples reported to USTR.
• ² Alibaba Group is a holding company with nine major subsidiaries – Alibaba.com, Taobao Marketplace, Tmall, eTao, Alibaba Cloud Computing, Juhuasuan, 1688.com, AliExpress.com and Alipay.
• ³ http://money.cnn.com/2012/09/27/news/economy/counterfeit-goods/index.html)
• ⁴ Senate Sub Committee on Commerce
• ⁵ http://web.mit.edu/cis/fpi_china.html
• ⁶ http://beachbodypiracy.wordpress.com/2013/01/23/beachbody-anti-piracy-enforcement/
• ⁷ http://www.browning.com/library/infonews/detail.asp?id=554  
• ⁸ http://www.ft.com/intl/cms/s/2/40a66dd2-b9ec-11e0-8171-00144feabdc0.html#axzz2wQA7qzCS

Website: www.theCounterfeitReport.com

Facebook: https://www.facebook.com/pages/The-Counterfeit-Report/131568053660579
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Background:
The Counterfeit Report ® is the first and only website to provide consumers a free and informative visual guide to detecting counterfeit products, promote consumer awareness, and provide manufacturers with brand protection and direct consumer education. The Counterfeit Report uses thousands of product photos to show consumers the sophistication of counterfeiters and their ability to create visually identical counterfeit products and packaging designed specifically to deceive.  Consumers can report seeing or purchasing counterfeit products directly to the manufacturer on the website, while manufacturers have an immediate resource to list and update their counterfeit product information in a central venue for the greatest mass-audience exposure.