Alibaba may face class-action suit

People ride a double bicycle past a logo of The Alibaba Group at the company's headquarters on the outskirts of Hangzhou, Zhejiang province Nov 10, 2014. [Photo/Agencies]

Five law firms in the US probe investor claims over business practices by the Chinese giant

Chinese e-commerce giant Alibaba Group is facing a possible class-action lawsuit initiated by five law firms based in the United States.

The development 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 said on Friday they are investigating investor claims about Alibaba's business practices.

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

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.

Alibaba and the administration quarreled this week over a quality-check report from the watchdog that found that less than 40 percent 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.

Hou Xiaotian, chief analyst at T. H. 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 percent 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 26.2 billion yuan ($4.22 billion) in the quarter ending Dec 31, but its year-on-year growth rate dropped to 40 percent from 66 percent 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.

Neil Flynn, head equity analyst at Chineseinvestors.com, said Alibaba's performance is still very impressive in terms of growth, the number of active users and sales made through mobile devices.

"With the firm's large valuation, investors won't be so kind toward Alibaba and will expect it to live up to the title of being the world's biggest e-commerce firm," he said.

Li Xiang contributed to this story.