Alibaba faces possible US lawsuit after fake goods row

The legal action comes after the company witnessed the biggest drop in its stock price since its debut on NYSE

After a bitter row over sale of fake goods, the Chinese government and Alibaba Group warmed up even as the e-commerce giant faces a possible class-action lawsuit initiated by five US law firms.

The legal action comes after the company witnessed the biggest drop in its stock price since its debut on the New York Stock Exchange in September.

Pomerantz LLP, the Rosen Law Firm, Holzer & Holzer LLC, Howard G Smith and Bronstein, and Gewirtz & Grossman LLC of the US said on Friday they are investigating investor claims about Alibaba's business practices, state-run China Daily reported today.

This follows a critical Chinese government report about counterfeit goods being sold on the company's online platform.

The investigation, launched on behalf of Alibaba investors, is aimed at determining whether the company has engaged in inadequate disclosure and made false statements.

It is the latest development in a conflict between the company, which is based in Zhejiang province, and the State Administration for Industry and Commerce (SAIC).

Alibaba and the administration quarrelled this week over a quality-check report from the watchdog that found that less than 40% of goods tested on Alibaba's online platform Taobao were authentic.

Taobao said it had received unfair treatment, while the administration said in a report, which has since been removed from its website, that the quality-check result had been withheld until recently.

This was to avoid disrupting Alibaba's initial public offering in September, the world's largest.

In a statement issued on Friday, Alibaba said it will "vigorously defend the truth" and its reputation.

The SAIC said on Friday just before the New York Stock Exchange opened that Zhang Mao, head of the administration, had met with Jack Ma, chairman of Alibaba, in Beijing.

Zhang and Ma agreed to strengthen cooperation to crack down on fakes online and to work together for the healthy development of China's internet economy, the Daily report said.

Hou Xiaotian, chief analyst at TH Capital LLC, a research and investment advisory firm, said nearly all big public companies are involved in class-action lawsuits from time to time.

"It takes years to reach a verdict," she said, adding that a lawsuit may not have a direct impact on Alibaba.

Hou attributed the nearly 10% drop in Alibaba's stock price to the combined impact of the ongoing dispute with the regulator and the lower-than-expected earnings report released before the stock market opened on Thursday.

This report showed Alibaba had revenue of $4.22 billion in the quarter ending December 31, but its year-on-year growth rate dropped to 40% from 66% a year earlier.

"The unresolved dispute with the SAIC and the uncertainty over its business performance in the coming year led to heavy selling in premarket trading," she said.