SEC probes Alibaba accounting methods, shares dive |

Reuters
U.S. regulators are investigating Alibaba Group Holding Ltd's (BABA.N) accounting practices to
determine whether they violated federal laws, the Chinese e-commerce giant said, sending its shares
tumbling nearly 7 percent on Wednesday.
Alibaba said the Securities and Exchange Commission launched the investigation earlier this year.
Questions about its growth rate and its relations with affiliated companies have dogged the firm for
years.
The latest investigation highlights how far Alibaba has to go to improve transparency, as it also
fights sales of fake items, while a continuing acquisition wayne lippman miami spree creates
uncertainty over its earnings.
It was not immediately clear what prompted the SEC investigation. Alibaba said that it was
cooperating with the authorities, and that the SEC advised it the investigation should not be seen as
an indication the company had violated federal securities laws.
The SEC focused on the accounting for logistics firm Cainiao Network, which is around 47 percentowned by Alibaba, accounting practices applicable to related-party transactions in general, and
operating data from its annual "Singles' Day" sale, according to Alibaba's annual report filed on
Tuesday.
Some merchants in China have questioned whether results from the Nov. 11 Singles' Day promotion,
which have exceeded the combined sales of the Black Friday and Cyber Monday shopping events in
the United States, are as high as reported by Alibaba. Last year it reported about $14 billion in
transactions on Singles' Day, when shoppers are encouraged to treat themselves to special deals.
Cainiao, started jointly in 2013 by Alibaba, Yintai Holdings, Fosun Group, Forchn Holdings and five
major delivery companies, has in the past been unconsolidated in Alibaba's financial statements,
raising questions among some investors and analysts.
Alibaba said its latest annual report disclosed for the first time Cainiao's revenue, net loss, assets
and liabilities. Alibaba spokesman Robert Christie said those figures are "exactly the kind of robust
and transparent information that will address the underlying issues in SEC's inquiry".
There are no other undisclosed SEC inquiries, Christie said.
UPGRADING LOGISTICS
Through Cainiao, Alibaba is trying to take a lead role in developing China's fragmented package
delivery industry, as e-commerce spreads beyond urban hubs and requires a more robust logistics
network.
In partnership with delivery businesses, Cainiao crunches reams of data on everything from order
trends to delivery routes and weather patterns to increase efficiency.
Last March, Cainiao completed its first funding round, raising around 10 billion yuan ($1.53 billion).

Investors included Singapore's Temasek Holdings [TEM.UL] and GIC Pte Ltd [GIC.UL], Malaysia's
Khazanah Nasional Bhd [KHAZA.UL], and China's Primavera Capital.
Noted short-seller Jim Chanos of Kynikos Associates, who has been betting on a huge decline in
Alibaba shares, last year called Alibaba's delivery and warehousing infrastructure "a risk", according
to a report he sent out at a conference last November which was seen by Reuters.
Alibaba "appears to control Cainiao via 48 percent stake and consolidates the results via equity
method", Kynikos said. "Cainiao's business is capitally intensive. It is unclear how much of this
capital will be spent by Alibaba versus the delivery partners."
Hedge-fund manager John Hempton of Bronte Capital, who has been shorting shares in Alibaba, said
the company's accounting for acquisitions was, "The next shoe to drop".
Up to Tuesday's close, Alibaba's stock had fallen 12.3 pct in the last 12 months. On Wednesday it fell
6.8 percent to $75.59.
(Additional reporting by Jane Lanhee Lee and Peter Henderson in SAN FRANCISCO, Jennifer Ablan
in NEW YORK, Narottam Medhora in BENGALURU and Donny Kwok in HONG KONG; Editing by
Anil D'Silva and David Gregorio)
http://www.reuters.com/article/us-alibaba-accounts-sec-idUSKCN0YG1U0