21 Sep

Why you should never, ever buy promotional products on Alibaba.

alibaba scam for promotional products

Even though this news is a little old it is worthy to note that the practice described is highly suspected of still going on!

What was it that took place?

+Gold rated companies on Alibaba were phantom companies set up by the then COO Elvis Lee

+Those companies took money from foreign buyers, did not deliver the goods and then disappeared from Alibaba

+Those same companies operating under new names then reappeared as Gold Suppliers only to do the same thing. 

In a statement released late Monday, Alibaba said that its longtime chief executive, David Wei, and the chief operating officer, Elvis Lee, had not been involved in the fraud but that they had resigned after accepting responsibility for failing to stop it.

The company said the fraud had been small and would not affect its financial performance. But the announcement stunned the technology community in China because Mr. Wei was one of the country’s most prominent chief executives and Alibaba.com was one of the most successful Chinese Internet start-ups.

The company said in its statement that 100 sales officers at Alibaba had helped perpetrate the fraud by allowing fake companies in China to register and sell products on Alibaba’s international Web site as “Gold Suppliers,” which suggested that they were among the more trustworthy.

Read the Bloomberg News article here

The sales team members often helped the companies avoid detection by internal investigators, the company said.

According to the company’s investigation, false companies listed on Alibaba.com often lured overseas customers, including some from the United States, into paying for consumer electronics, like laptops and televisions. Most of the transactions were for less than $1,200, Alibaba said, but after the payments arrived in China, no goods were delivered.

This is not the first time the Alibaba Group has had to deal with accusations of fraud. There have been persistent reports over the years of Alibaba selling counterfeit goods or allowing sellers to defraud buyers.

Read the complete NY Times story here

The company has tried to create systems to ensure and authenticate the sellers, analysts say, a challenge when Alibaba.com and Taobao, the group’s online shopping malls, engage in billions of dollars worth of transactions every month.

Read PC Article here

In addition to the resignations of Mr. Wei and Mr. Lee, the chief of human resources for the Alibaba Group, Deng Kangming, was demoted.

The board of Alibaba appointed Jonathan Lu, the 41-year-old chief executive of Alibaba.com’s sister company, Taobao, as chief executive ofAlibaba.com. He will continue to lead Taobao.

Read Fortune Magazine story

Alibaba.com is one of China’s biggest success stories. It is part of China’s much bigger Alibaba Group, of which Yahoo owns approximately 40 percent. A Yahoo spokeswoman, Dana Lengkeek, said her company had no comment on the Alibaba.com shake-up. Alibaba.com, the group’s flagship property, has 57 million registered users worldwide, including 14 million on its English-language Web site.

Through the first three quarters of last year, the Web site had revenue of close to $600 million — all from registered users seeking to sell goods online.

Alibaba.com — which essentially matches buyers and sellers around the world — was founded in the 1990s by a group led by Jack Ma, a former English teacher who is one of China’s best- known Internet entrepreneurs.

In a statement Monday, Mr. Ma — who is chairman of the Alibaba Group — said about 2,300 companies that registered as Gold Suppliers in 2009 and 2010 had committed fraud on the site.

“Our company has determined that the vast majority of these storefronts were set up to intentionally defraud global buyers,” Mr. Ma wrote. “The methods of the perpetrators suggest that they have engineered an organized and systemic attack on the integrity of the Alibaba.com platform for illegal gains.”

A spokesman for Alibaba, John Spelich, said that the company was working to compensate victims and that technology had been created to better detect fraud. The company insists the fraud involved only about 100 people in a sales force of 5,000. Many of the workers were dismissed, and the company said the inquiry was continuing.

In his statement Monday, Mr. Ma said that registered companies engaged in fraud accounted for only about 1 percent of the Gold Suppliers on Alibaba.com and that the company would do everything possible to protect its customers. “We must send a strong message that it is unacceptable to compromise our culture and values,” he wrote.