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Alibaba Resignations Exposes Fraud on Popular Wholesaler Website

Alibaba faces new scrutiny in the wake of an internal investigation which revealed that employees helped cover up fraudulent practices.

Alibaba, a Hong Kong-based business to business global commerce website long criticized for facilitating the sale of counterfeit merchandise on a wholesale basis is facing new scrutiny in the wake of an internal investigation which revealed that employees helped cover up fraudulent practices on the ecommerce website.

Alibaba is an online marketplace that allows small businesses around the world to buy and sell an assortment of products over the Internet primarily on a wholesale basis. As reported in the New York Times, an internal investigation at the company revealed that Alibaba employees helped fraudulent Chinese companies as "Gold Suppliers" -- a trusted seller designation -- with knowledge that the sellers were fraudulently listing products for sale on the website and never shipping the goods after payment was received. According to reports, Alibaba employees either intentionally or negligently allowed the vendors to evade authentication and verification measures.

Alibaba's CEO and COO resigned in the wake of the investigation, taking responsibility for not stopping the fraud, without admitting any actual involvement in the fraud. During 2009 and 2010 approximately 2,300 companies registered as "gold sellers," an indication of trustworthiness on Alibaba, committed fraud through the site.

While this investigation did not relate to counterfeiting, but rather lack of fulfillment, the fraudulently-acquired trusted seller designation obviously will hurt the integrity of the website. Moreover, given the continuing problems at the site, companies should monitor Alibaba.com and other sites to confirm that their products appearing thereon are genuine, and demand that counterfeiters be barred.

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